Alisa Bank PLC

Annual Report (ESEF) • Mar 16, 2023

743700VK1NB8HRGTQH742022-01-012022-12-31743700VK1NB8HRGTQH742021-01-012021-12-31743700VK1NB8HRGTQH742022-12-31743700VK1NB8HRGTQH742021-12-31743700VK1NB8HRGTQH742021-12-31ifrs-full:IssuedCapitalMember743700VK1NB8HRGTQH742021-12-31fellow:FundOfIinvestedNonRestrictedEquityMember743700VK1NB8HRGTQH742021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700VK1NB8HRGTQH742021-12-31ifrs-full:RetainedEarningsMember743700VK1NB8HRGTQH742021-12-31ifrs-full:EquityAttributableToOwnersOfParentMemberiso4217:EURiso4217:EURxbrli:shares743700VK1NB8HRGTQH742022-01-012022-12-31ifrs-full:RetainedEarningsMember743700VK1NB8HRGTQH742022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember743700VK1NB8HRGTQH742022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700VK1NB8HRGTQH742022-01-012022-12-31ifrs-full:IssuedCapitalMember743700VK1NB8HRGTQH742022-01-012022-12-31fellow:FundOfIinvestedNonRestrictedEquityMember743700VK1NB8HRGTQH742022-12-31ifrs-full:IssuedCapitalMember743700VK1NB8HRGTQH742022-12-31fellow:FundOfIinvestedNonRestrictedEquityMember743700VK1NB8HRGTQH742022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700VK1NB8HRGTQH742022-12-31ifrs-full:RetainedEarningsMember743700VK1NB8HRGTQH742022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember743700VK1NB8HRGTQH742020-12-31ifrs-full:IssuedCapitalMember743700VK1NB8HRGTQH742020-12-31fellow:FundOfInvestedNonRestrictedEquityMember743700VK1NB8HRGTQH742020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700VK1NB8HRGTQH742020-12-31ifrs-full:RetainedEarningsMember743700VK1NB8HRGTQH742020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember743700VK1NB8HRGTQH742020-12-31743700VK1NB8HRGTQH742021-01-012021-12-31ifrs-full:RetainedEarningsMember743700VK1NB8HRGTQH742021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember743700VK1NB8HRGTQH742021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember743700VK1NB8HRGTQH742021-12-31fellow:FundOfInvestedNonRestrictedEquityMember Annual Report 2022  ....................................................................... 3 A new digital bank .................................................................................... 3 CEO’s review ........................................................................................... 6  .................................................................................. 8  ............................................................................................... 9  ..................................................................... 10 Board of Directors´Report ........................................................... 11 .......................................................................... 13  ......................................................................... 13  ........................................... 14  .................... 19 Shares and shareholders ...................................................................... 20  ..................................................................................... 22 ....................................................................... 22  ............................................. 22  .............................................. 23 Financial Statements .................................................................... 24  ............................................................ 24  ............................................. 66 .............................................. 89  ................................................................................... 90 Governance .................................................................................... 95 2 Contents Fellow Bank Annual Report 2022   Governance 33 A new digital bank Fellow Bank is a new Finnish digital bank for a            with Evli’s strong expertise in deposit banking operations and risk           Fellow Bank Annual Report 2022   Governance 4        Superior customer experience:                Fellow Bank Annual Report 2022   Governance 5           Vision  everyday life Values     Strategic cornerstones     Mission everyday digital banking  Fellow Bank Annual Report 2022   Governance 6 Growth continued and  second half                               Fellow Bank Annual Report 2022   Governance                                                          CEO Fellow Bank Annual Report 2022   Governance 8 Highlights of 2022 April 2022  Fellow Finance and Evli Bank            weltsparen.de online service    which expands Fellow Invoice and Fellow   September 2022  enabling Fellow Bank’s banking and    December 2022   Ocotber 2022    strong growth of the credit portfolio Fellow Bank Annual Report 2022   Governance 9  Loan portfolio:     Deposits:    164 48 200 247 10,2 16,8 % 57 Fellow Bank Annual Report 2022   Governance 10    =  x 100     =  x 100   Loanportfolio     balance sheet.  =  x 100   =  x 100     =  x 100 Loan portfolio at the end of the period  =  x 100  within 30 days  =  x 100    =  x 100   =  x 100   =  x 100     Fellow Bank Annual Report 2022   Governance 11 Board of Directors’ Report Fellow Bank Plc (“Fellow Bank” or “the company”) is a new Finnish digital bank that makes everyday life easier. Fellow Bank serves private individuals and small and medium-sized enterprises, as well as savers seeking competitive interest income for their deposits. Fellow Bank was formed through the merger of Evli Bank Plc’s banking company (“Evli Bank”) and Fellow Finance Plc (“Fellow Finance”) on 2 April 2022 (“the merger”). Before the merger, Evli Plc (“Evli”), a new group focusing on asset management, was separated from Evli Bank through a partial demerger. More information about the arrangement is provided in a stock exchange release issued by Evli Bank on 25 March 2022. Evli Bank was the legal acquirer in the merger. With respect to the year 2021 and the period between 1 January and 1 April 2022, the events concerning the parent company and its    Fellow Finance is the accounting acquirer and Evli Bank is the accounting acquiree. The  and the period between 1 January and 1 April 2022 presented in this Board of Directors’   the presentation method required by the regulations and guidelines issued by the Financial  Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 12 At the time of the merger, Evli Bank’s business consisted mainly of deposit taking and deposit management (deposits totalled EUR 244.0 million on 1 April 2022) and to a lesser extent from lending (the loan portfolio totalled EUR 5.3 million on 1 April 2022). At the time of the merger, Evli Bank’s assets and liabilities were as follows: • The launch of banking operations and the merger with Evli Bank were operationally very successful. •  targeted level of EUR 150 million. Because of the strong increase in the loan portfolio, the  losses are taken into account in a front-loaded manner in relation to returns. Realised credit losses were EUR 3.9 million (1.4). • Deposits totalled EUR 246.8 million (0) at the end of the review period. •  non-recurring costs related to the merger and investments in the start-up of banking operations and customer acquisition. Non-recurring costs amounted to EUR 1.9 million. • The company invested heavily in the development of its digital banking services. These new services were well received by customers, as indicated by a customer satisfaction survey  •   At the time of the merger, Evli Bank’s assets mainly consisted of cash assets, and its liabilities consisted of deposit liabilities to the public and public-sector entities. Evli Bank’s  2022 was EUR -0.5 million due to interest expenses on deposits and the impact of business expenses. The table below shows the condensed income statement of the banking     issuing new peer-to-peer loans and crowdfunding loans in March 2022. However, the company continues to manage its existing peer-to-peer loan portfolio. Under the new business model, loans are granted from Fellow Bank’s balance sheet. EUR 1000 1.4.2022 Total assets 250 932 Total liabilities 244 484 Equity 6 449 EUR 1000 1.1.–1.4.2022 Total income -161 Total operating costs -335 Realised and expected credit losses -1   CONSOLIDATED KEY FIGURES (EUR 1000) 2022 2021 2020 Net interest income 9 053 2 650 3 504 Net commission income and expenses 1 511   Total operating costs -11 601 -6 663  Realised and expected credit losses -8 321 -1 989   -9 684 -1 464 -321  113 93 55 Balance sheet total 291 661 22 418 28 232  neg. neg. neg.  16,8 - -  12,6 - - Number of employees at end of period  66 54  -0,14 -0,22 -0,04  5,1 11,0 14,1    Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 13 Fellow Bank is a new Finnish digital bank for a smoother everyday life serving personal and   The strategy is based on four cornerstones: superior customer experience, operational  domesticity and responsibility.  customers lending services and savings account products. The company’s service selection  on the Finnish market, but in the future years of infrastructure and know-how accumulated from lending in other markets also enable international growth.   the beginning of April. As a result, Fellow Bank’s banking business in its current form started. When banking business started, mobile and online banks was launched to customers. A  period on a wide range of fronts: •  complement the features of the mobile bank and strengthen the mobile development. •   method to more than 20,000 Finnish online stores. •     •  February 2023 payment accounts and credit card were launched to customers.  program, the company had change negotiations in the autumn, which included the entire personnel of the group’s parent company in Finland. As a result of the change negotiations,    coronavirus pandemic, was challenged by the Russian invasion of Ukraine. The war has increased uncertainty in the operating environment and has caused the prices of raw materials and energy to increase, in addition to causing interruptions related to components and logistics.         interest rate hikes are likely to continue in the spring, but the slowing economic growth and  the business environment is expected to continue during 2023. Despite the economic uncertainty, the employment rate has so far developed favourably. The  capacity of households to repay their loans according to the original plan.    Financial performance  the increase in own balance sheet loan portfolio, as well as customer acquisition and the establishment of operations in line with the new organisation.   strong growth of the loan portfolio also increased the amount of expected credit loss Business environment Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 14  into account in a front-loaded manner in relation to returns. Realised credit losses were EUR 3.9 million (1.4).  recurring costs related to corporate restructuring and investments related to the start-up of banking operations. The direct impacts of the uncertainties in the business environment on Fellow Bank’s operations and demand have been minor. The increase in the interest rate level will have a moderately positive impact on the development of the bank’s net interest income.   period. Assets, EUR 292.0 million, mainly consisted of cash EUR 120.5 million and loans granted  assets, EUR 8.2 million, include EUR 6.0 million goodwill generated in business acquisitions and EUR 1.9 million of capitalized product development costs. During the period, EUR 0.8 million (EUR 1.3 million) of product development expenses were capitalized.  public-sector entities (EUR 246.8 million).   instrument with a lower priority than Fellow Bank’s other commitments, which belongs to the secondary capital referred to in the solvency regulations applicable to Fellow Bank. The  annual interest rate of the debenture loan is 8 percent. At the end of the review period, the company had no issued bonds. The bond raised in 2019   in equity was the directed share issue carried out in connection with the Merger, in which  euros..   company to risks caused by changes in the business environment and the company’s own operations. Risk-taking is managed with principles and limits approved by the company’s  aim of which is to secure the adequacy of the company’s risk tolerance in relation to all the material risks of its operations.  Risk management refers to actions aimed at systematically surveying, identifying, analysing  •  •   •    Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 15     management and internal control are organised. The aim is to manage risks through risk assessments and measures carried out on the basis of the assessments, systematic follow-up, and analysis of the operating environment and the market. The aim of the risk control function is to promote systematic and proactive risk management     management policy and guidelines adopted by the Board of Directors for the company, and risk reporting on key business areas. Fellow Bank focuses on retail banking operations  through its own balance sheet and through its partners. The company does not have  The Board of Directors sets the level of risk appetite by approving risk strategies for each risk area and the necessary risk limits and monitoring thresholds. The implementation of the risk strategy is regularly monitored through the management and reporting of risk limits and monitoring thresholds, which are carried out independently of the business area. The company maintains its capital adequacy at a safe level. The company’s capital adequacy and  instruments that increase own funds. The Board of Directors is kept regularly informed about   credit and market risks. Within the authorisations, the responsibility for day-to-day risk monitoring and control rests with the senior management. The risk reporting practices meet the requirements set for risk management, taking into account the nature and scope of the    • Risk control function •  •        daily business operations and compliance with the risk limits granted to the business units, as well as compliance with risk-taking policies and guidelines. The Risk Management function reports its observations to the Management Team and the company’s Board of Directors. The independent Risk Management function is responsible for ensuring and monitoring that the company’s risk management is adequate in relation to the nature, scope, diversity and  are brought within the scope of the risk management of the company’s business areas.  the company by supporting the senior management and the business units in applying       this by means of inspections that are based on the internal audit action plan adopted annually by the Board of the company. Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 16  Fellow Bank’s business risks mainly consist of credit and counterparty risk as well as         business are indirect.  increased the amount of credit risk, but the relative credit risk position has nevertheless  peer-to-peer and crowdfunding activities, thanks to improved competitiveness, the company has systematically targeted lending towards customers with a lower credit risk. Due to the   of Tier 1 own funds and which has full collateral. The loan portfolio before the reduction of        rate risk management. The company constantly monitors the development of the interest rate risk through, for example, the sensitivity analysis of changes in the current value of       secure the adequacy of the company’s risk tolerance in relation to all the material risks of  relevant to its operations and, based on these, calibrates its risk tolerance to correspond with Fellow Bank’s overall risk position. The capital adequacy management process plays a  The internal capital requirements determined through the capital adequacy management     The company’s Board of Directors has primary responsibility for the capital adequacy  capital management process.  cover all material risks arising from business operations and from changes in the external operating environment. The company’s capital adequacy management is the responsibility of the Board of Directors, which also sets the risk limits for the company’s operations. Every year, the Board of Directors reviews the risks related to the company’s capital adequacy management, the capital plan and the limits set for the risks. Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements    calculation and the basic indicator approach for operational risks.   of capital necessary for payment institution operations in accordance with the laws and regulations concerning payment institutions. Fellow Finance’s own funds were EUR 10.4 million, with the minimum requirement for own funds being EUR 0.5 million at the end of 2021.     At the end of the review period, the group’s capital structure was strong and mostly consisted      the end of the review period.    28 281  -10 582  17 700  0  0  0  17 700  6 100  -250  5 849   120 512 Market  Operational risk 19 198  140 466        31.12.2022 Total Equity  Total Exposure Amount 283 819   Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 18    they fall due. The company’s main liquidity risks arise from the maturity mismatch between borrowing and lending.  company’s cash assets. The company prepares for the repayment of future debts by limiting new lending in the upcoming years as necessary, thereby ensuring its liquidity position. The company’s liquidity remained stable during 2022.    can be sold very quickly.     company in resolution plan.  31.12.2022   370 Total high quality liquid assets (3 months average)   53 000      Total available stable funding 240 656 Total required stable funding    Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 19  December 2021, an arrangement between Evli Bank and Fellow Finance Oy was agreed upon through which Evli Bank was divided, through a partial demerger, into a new group that focuses on asset management and will be listed, and a company that will continue banking   and on increasing Fellow Bank’s share capital immediately after the implementation of the   2022.     making a total of EUR 25 228 883.20. Until 1 April 2022, the Board of Directors of Evli Bank consisted of Henrik Andersin   Until 1 April 2022, Board of Directors consisted of Kai Myllyneva       2021 elected six (6) members to   as ordinary members of the Board of Directors for a term that started on the date of registration of the implementation of the merger and ends at the close of the Annual  Fellow Bank’s Board of Directors held a constitutive meeting on 4 April 2022 and elected    Jukka Paunonen, Authorised Public Accountant, as the principally responsible auditor. Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 20   combine Evli Bank’s series A and series B shares into a single share class. The 20 votes per share conferred by the series A shares were converted into one vote per share conferred by the share of the combined series, so that each share in the company has one (1) vote after the combination of the share classes.    purchase of treasury shares in one or more tranches as follows: The total number of treasury  to a total of approximately 10 per cent of all shares in the company after the merger between the company and Fellow Finance Plc has been completed and the private placement in connection with the merger has been implemented. Under the authorisation, treasury shares may only be acquired with unrestricted equity. Treasury shares may be acquired at the price formed for them in public trading on the acquisition date or at a price otherwise determined by the market. The Board of Directors shall decide how treasury shares are acquired. Treasury shares may be acquired in a proportion other than that of the shares held by shareholders (directed acquisition).     Shares and shareholders  charge. Based on the authorisation, the number of shares issued or transferred, including shares received on the basis of special rights, may total a maximum of 4 350 000 shares. The number of shares corresponds to approximately 5 per cent of all shares in the company after the merger between the company and Fellow Finance Plc has been completed and the  The authorisation enables the Board of Directors to decide on all the terms and conditions of the share issue and of the granting of special rights entitling to shares, including the right to deviate from shareholders’ pre-emptive subscription rights. The Board of Directors may decide to issue either new shares or any treasury shares held by the company. The authorisation cancels the previous unused authorisations to issue shares and stock options, and any other authorisations regarding issuance of special rights providing entitlement to shares. The authorisation is valid from the implementation of the merger  later than 30 June 2023.  Trading in series B shares in Fellow Bank Plc on the main list of the Nasdaq Helsinki began   332 182 at the end of December. The company’s share capital stood at EUR 18.3 million at the end of December.   company. Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 21  Oy (“Mobify”). The purchase price was paid partly in cash and partly in Fellow Bank shares.  The closing price of Fellow Bank’s share was EUR 0.36 on 30 December 2022, the last trading  with the highest trading price being EUR 0.58. Fellow Bank’s market capitalisation was EUR      1.1.2021 328 998 23 780 422 Purchase of own shares   Other amendments 31.12.2021 251 983 23 857 437 Total number of shares 24 109 420 1.1.2022 251 983 23 857 437 Merger consideration shares   20 005 924 Purchase of shares in subsidiaries  Other amendments -31 613 31 613 31.12.2022 220 370 88 111 812  88 332 182 The shareholders’ holding information is based on the list of shareholders maintained by     1. Evli Plc 15 288 303  2. Taaleri Plc 15 288 303  3.    4. Oy Prandium Ab   5.    6. OY T&T Nordcap Ab 3 938 616    3 400 339  8.  (publ) Hgin sivukonttori 2 001 139  9. Rausanne Oy 1 149 054  10.  1 125 395  Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 22         Bank’s digital services. The purchase price of EUR 1.3 million was paid partly in cash and partly     employees who transferred from Evli Bank to Fellow Bank in the merger and of newly  and Turku and 8 (9) in other countries of operation.  locations  .  remuneration statement  incentive system for the group’s key personnel, and on the planning of employee share issue for all personnel. The performance-based share-based incentive system for key personnel   the earning period 2023, the target group includes approximately 11 key personnel, including   opportunity to subscribe for the company’s shares at a reduced price and, by subscribing, would earn the right to receive additional shares from the company at a later date. The shareholders’ nomination committee proposes to the 2023 annual general meeting that    board members. Among the current members of the board, Kai Myllyneva is no longer a candidate for the board. The company has entered a letter of intent to sell the Polish business. The size of Poland’s loan portfolio at the end of December 2022 was EUR 3.4 million. The credit loss reservation of the loan portfolio was EUR 3.2 million. Material events after the review period Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 23  The operation is stabilised and the result has developed in a positive direction.    comprehensive banking services for our customers and new digital service channels. The bank’s revenues are estimated to grow from 2022.    strengthen the company’s capital during 2023.  outlook for 2023  targeted capital adequacy. The company does not plan to distribute dividends in the short or medium term.       Board of Directors Fellow Bank Plc   Fellow Bank Annual Report 2022  Board of Directors’ Report Financial statements 24 Group´s Financial statements 1.1.-31.12.2022 Consolidated statement of comprehensive income ................................................................... 25 Consolidated balance sheet ........................................................................................................... 26 Consolidated statement of changes in equity .............................................................................. 27 Consolidated cash flow statement ............................................................................................... 28 Notes to the Consolidated Financial statements G1: Accounting principles for the Consolidated Financial statements ..................................... 29 G2: Group´s risk management ...................................................................................................... 42 G3: Net interest income .................................................................................................................. 49 G4: Fee and commission income and expenses ......................................................................... 49 G5: Net income from investing activities ...................................................................................... 50 G6: Other operating income .......................................................................................................... 51 G7: Personnel expenses .................................................................................................................. 51 G8. Other administrative expenses ............................................................................................... 53 G9: Depreciation and impairment losses .................................................................................... 53 G10: Other operating expenses ..................................................................................................... 53 G11: Realized and expected credit losses ..................................................................................... 53 G12: Income taxes ........................................................................................................................... 56 G13: Earnings per share .................................................................................................................. 57 G14: Classes of financial assets and liabilities and fair values ................................................... 58 G15: Cash and cash equivalents ................................................................................................... 58 G16: Claims on credit institutions .................................................................................................. 58 G17: Claims on public and public sector entities ......................................................................... 58 G18: Intangible assets ..................................................................................................................... 59 G19: Tangible assets ........................................................................................................................ 60 G20: Other assets ............................................................................................................................ 60 G21: Accrued income and prepayments....................................................................................... 60 G22: Tax assets and liabilities......................................................................................................... 61 G23: Liabilities to the public and public sector entities .............................................................. 61 G24: Debt securities issued to the public ..................................................................................... 61 G25: Subordinated liabilities .......................................................................................................... 61 G26: Other liabilities ........................................................................................................................ 61 G27: Accrued expenses deferred income ..................................................................................... 61 G28: Equity ........................................................................................................................................ 61 G29: Off-balance sheet commitments .......................................................................................... 61 G30: Collaterals received ................................................................................................................ 62 G31: Corporate structure ................................................................................................................ 62 G32: Related parties ........................................................................................................................ 63 G33: Business combinations .......................................................................................................... 63 G34: Significant events after the period........................................................................................ 65 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements 25 Consolidated Income statement 2022 Adjusted 2021 Interest income 11 101 3 415 Interest expenses -2 048 -766 Net interest income K3 9 053 2 650 Fee income K4 3 885 7 443 Fee expenses K4 -2 374 -2 946 Net fee and commission income 1 511 4 497 Net income from investing activities K5 -349 0 Other operating income K6 24 41 Total income 10 239 7 188 Operating expenses Personnel expenses K7 -5 378 -3 248 Other administrative expenses K8 -4 487 -2 646 Depreciation and amortization K9 -691 -495 Other operating expenses K10 -1 046 -274 Total operating expenses -11 601 -6 663 Realized and expected credit losses K11 -8 321 -1 989 Profit before taxes -9 684 -1 464 Income taxes K12 -901 -101 Result for the year -10 585 -1 564 Note 2022 Adjusted 2021 Other comprehensive income/loss Items that are or may be reclassified subse- quently to profit or loss Foreign currency translation differences 15 6 Other comprehensive income after taxes 15 6 Comprehensive income, total -10 570 -1 558 Result for the year attributable to Equity holders of parent company -10 585 -1 564 Total comprehensive income attributable to Equity holders of parent company -10 570 -1 558 Earnings per share K13 Earnings per share (EPS), basic, EUR -0,14 -0,04 Earnings per share (EPS), diluted, EUR -0,14 -0,04 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements 26 Consolidated Balance sheet 2022 Adjusted 2021 Assets Cash and equivalents K15 120 528 0 Claims on credit institutions K16 5 941 3 457 Claims on the public and public sector entities K17 154 656 13 439 Intangible assets and goodwill K18 8 157 1 403 Property, plant and equipment K19 140 268 Other assets K20 1 438 2 560 Accrued income and prepayments K21 210 177 Income tax assets K22 461 81 Deferred tax assets K22 129 1 032 Assets total 291 661 22 418 2022 Adjusted 2021 Liabilities Liabilities to the public and public sector entities K23 246 810 0 Debt securities issued to the public K24 0 8 402 Subordinated liabilities K25 6 203 0 Other liabilities K26 8 796 1 567 Accrued expenses and deferred income K27 3 867 583 Income tax liabilities K22 0 77 Liabilities total 265 675 10 629 Equity K28 Equity attributable to equity holders of the parent Share capital 18 286 125 Fund of invested non-restricted equity 19 917 13 361 Retained earnings -12 218 -1 696 Equity attributable to equity holders of the parent 25 985 11 790 Liabilities and equity total 291 661 22 418 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements 27 Consolidated Statement of changes in equity Attributable to the equity holders of the parent Reserve for invested unre- Translation Retained Note Share capital stricted equity differences earnings Total Total equity Equity on 1.1.2022 125 13 361 2 -1 699 11 790 11 790 Result for the year -10 585 -10 585 -10 585 Other comprehensive income 15 15 15 Total comprehensive income 15 -10 585 -10 570 -10 570 Reverse acquisition 6 446 6 056 12 502 12 502 Share issue 11 715 11 715 11 715 Other changes 500 500 500 Share based payments 51 51 51 Equity on 31.12.2022 18 286 19 917 17 -12 233 25 985 25 985 * The effect of the reverse acquisition consists of the amount of the fair value of the consideration for the acquisition, which takes into account the capital structure of the legal parent company, Fellow Bank Plc. Other changes from 2022 include the part of the purchase price paid in shares related to the acquisition of Mobify Invoices Oy, which is presented in the section Reserve for invested unrestricted equity. Attributable to the equity holders of the parent Reserve for invested unre- Translation Retained Note Share capital stricted equity differences earnings Total Total equity Equity on 1.1.2021 125 13 361 -4 -300 13 182 13 182 Result for the year -1 564 -1 564 -1 564 Other comprehensive income 6 6 6 Total comprehensive income 6 -1 564 -1 558 -1 558 Share based payments 165 165 165 Equity on 31.12.2021 125 13 361 2 -1 699 11 790 11 790 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements 28 2022 Adjusted 2021 Cash flow from operating activities Profit (loss) for the period -10 585 -1 564 Adjustments for items not included in cash flow Depreciation and impairment 572 495 Credit losses 7 488 1 989 Income taxes 901 101 Other adjustments 0 760 Adjustments total 8 961 3 344 Cash flows from operating activities before changes in operating assets and liabilities -1 623 1 780 Increase (-) or decrease (+) in operating assets Claims on the public and public sector entities -141 982 2 240 Other assets -444 1 103 Increase (-) or decrease (+) in operating liabilities Liabilities to the public and public sector entities 246 810 0 Other liabilities 11 700 1 000 Cash flow from operating activities 114 461 6 122 Consolidated Cash flow statement 2022 Adjusted 2021 Investing activities Investments in tangible assets -22 -11 Investments in intangible assets -972 -1 300 Acquisitions of subsidiaries -772 0 Cash flow from investing activities -1 765 -1 311 Cash flow from financing activities Repayment of bond -7 380 -5 130 Issue of debenture loan 6 100 0 Paid directed share issue 11 715 0 Repayments of lease liabilities -119 -115 Cash flow from financing activities 10 317 -5 245 Change in cash and cash equivalents 123 012 -434 Cash and cash equivalents at the beginning of period 3 457 3 769 Translation differences 0 121 Cash and cash equivalents at the end of period 126 469 3 457 Cash and equivalents are formed by the following items: Cash and cash equivalents 120 528 0 Claims on credit institutions 5 941 3 457 Cash and cash equivalents at the end of period 126 469 3 457 The growth of loan and deposits portfolio increased strongly cash flows from operating activities. Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements G1. Accounting principles for the Consolidated Financial statements Basic information on the company Fellow Bank Plc (“Fellow Bank”) is a new Finnish digital bank that makes everyday life easier. Fellow Bank serves private individuals and small and medium-sized enterprises, as well as savers seeking competitive interest income for their deposits. Fellow Bank was formed through the merger of Evli Bank Plc’s banking company (“Evli Bank”) and Fellow Finance Plc (“Fellow Finance”) on 2 April 2022. Before the merger, Evli Plc (“Evli”), a new group focusing on asset management, was separated from Evli Bank through a partial demerger. Evli Bank was the legal acquirer in the merger. In IFRS reporting, the arrangement is treated as a reverse acquisition in which Fellow Finance is the accounting acquirer and Evli Bank is the accounting acquiree. In this Financial statements report, income statement, balance sheet, cash flow statement and notes for 2021 and 1 January to 1 April 2022 are related to the Fellow Finance Group. The figures comply with the IFRS and the presentations is subsequently revised in accordance with the regulations and guidelines issued by the Financial Supervisory Authority for the financial reporting of credit institutions. The Fellow Bank Group consisted of the parent company Fellow Bank Plc and its wholly owned subsidiaries Mobify Invoices Oy, Lainaamo Ltd, Fellow Finance Sp. z o.o., Fellow Finance Estonia OÜ, Fellow Finance Deutschland GmbH and Fellow Finance Česko s.r.o. Fellow Bank has been authorised by the Financial Supervisory Authority to engage in credit institution operations. In Germany, it has a credit intermediation licence (Kreditvermittelung - slizens). Its subsidiary Lainaamo Ltd is registered in the creditor register maintained by the  Fellow Bank Plc  to Denmark across the border as enabled by its license for credit institution operations. Fellow Bank Plc is listed on the main list of the Nasdaq Helsinki. Fellow Bank Plc’s head office  Pursimiehenkatu 4 A, 00150 Helsinki, Finland. is Finland and its domicile is Helsinki. The legal form of the company is a public limited company. Copies of the Financial Statements and Interim Reports are available on the Bank´s website www.fellowpankki.fi. Basis for preparation of the financial statements The consolidated financial statements have been prepared in compliance with IFRS (International Financial Reporting Standards), approved for application in the EU, and IAS (International Accounting Standards) valid at the end of 2021, together with their respective SIC (Standing Interpretations Committee) and IFRIC (International Financial Reporting Interpretations Committee) interpretations. The notes to the consolidated financial state - ments also include information required by Finnish accounting and limited liability company legislation and the supplementary requirements of authorities´requirements.  12 months from 1 January to 31 December 2022.  for comparative figures are presented in the 2021 Financial Statements. As a result of the business model that changed with the merger, the figures for the compari - son periods are not comparable. Although there was a significant change in the company’s earnings logic, however, the accounting principles in many respects remained unchanged. In the old business model, to the Fellow Finance group affiliated subsidiary Lainaamo Oy acted as one of the investors in peer-to-peer loans. Lainaamo Oy’s the financial assets and liabilities on the balance sheet, as well as the related income and expenses, were recorded in at the Fellow Finance group, with the same accounting principles that Fellow Bank is using now.  thousands of euros unless otherwise indicated, and the figures are rounded to the nearest thousand, and therefore the sum of individual figures may deviate from the presented total sum. The  euro presentation currency of the Company and the Group. 29 Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements New accounting principles Application of the presentation method in accordance with the regulations and guidelines set by the Financial Supervisory Authority for financial reporting Fellow Bank presents financial information in accordance with the regulations and guidelines set by the Financial Supervisory Authority for financial reporting by credit institutions. In this Group Financial Statement report, the income statement, balance sheet, cash flow statement and accompanying information for the years 2021 and 1.1.-1.4.2022 are figures of the Fellow Finance group. The figures comply with IFRS regulation and they have been subsequently adjusted to the presentation method according to the regulations and instructions set by the Financial Supervisory Authority for financial reporting by credit institutions. The reclas - sifications of income statement and balance sheet items according to the regulations and guidelines set by the Financial Supervisory Authority for credit institutions’ financial reporting are shown in the tables below. Goodwill During the financial year, the group has implemented a new accounting principle regarding goodwill. Fellow Finance income statement reclassifications from 1 January to 31 December 2021 Income statement reclassifications 1 January to 31 December 2021 Turnover (10,688) has been reclassified to interest income (3,244) and fee income (7,443). Materials and services (-2,946) have been reclassified to fee expenses (-2,946). Other operat - ing expenses (-2,920) have been reclassified to other administrative expenses (-2,646) and other operating expenses (-274). Financial income (171) has been reclassified to interest income (171). Financial expenses (-758) have been reclassified to interest expenses (-758). 1.1.-31.12.2021 EUR THOUSAND Fellow Finance historical Revenue 10 688 Other operating income 41 Materials and services -2 946 Personnel expenses -3 248 Depreciation, amortisation and impairment -495 Impairment losses on financial assets -1 989 Other operating expenses -2 920 Operating result -869 Financial income 171 Financial expenses -766 Result before taxes -1 464 Income taxes -101 Result for the year -1 564 Other comprehensive income/loss Items that are or may be reclassified subsequently to profit or loss  Foreign currency translation differences - foreign operations 6 Other comprehensive income after taxes 6 Comprehensive income, total -1 558 30 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements 1.1.-31.12.2021 EUR THOUSAND Fellow Bank reclassified Interest income 3 415 Interest expenses -766 NET INTEREST INCOME 2 650 Fee income 7 443 Fee expenses -2 946 Other operating income 41 TOTAL OPERATING INCOME 7 188 Operating expenses Personnel expenses -3 248 Other administrative expenses -2 646 Depreciation and amortization on tangible and intangible assets -495 Other operating expenses -274 Impairment of receivables -1 989 TOTAL OPERATING EXPENSES -1 464 PROFIT BEFORE TAXES -1 464 Income taxes -101 RESULT FOR THE YEAR -1 564 OTHER COMPREHENSIVE INCOME/LOSS Items that are or may be reclassified subsequently to profit or loss Foreign currency translation differences - foreign operations 6 Total 6 Other comprehensive income after taxes 6 COMPREHENSIVE INCOME, TOTAL -1 558 Fellow Finance balance sheet reclassifications 31 December 2021 Balance sheet reclassifications from 1.1.-31.12.2021 Long-term loan receivables (6,310) and short-term loan receivables (7,129) have been reclassi - fied to receivables from the public and public entities. Trade receivables and other receivables (2,737) have been reclassified to other assets (2,561) and accruals and advances paid (177). Cash and cash equivalents (3,457) have been reclassified to receivables from credit institu - tions. Lease liabilities (294) have been reclassified to other liabilities. Accounts payable and other liabilities (1,914) have been reclassified to other liabilities (1,331) and accrued liabilities and advances received (583). 31 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements 1.1.-31.12.2021 EUR THOUSAND Fellow Finance historical ASSETS Non-current assets Non-current loan receivables 6 310 Intangible assets 1 403 Tangible assets 268 Deferred tax assets 1 032 Total non-current assets 9 014 Current assets Current loan receivables 7 129 Trade and other receivables 2 737 Income tax receivables 81 Cash and cash equivalents 3 457 Total currents assets 13 404 TOTAL ASSETS 22 418 LIABILITIES Non-current liabilities Lease liabilities 114 Total non-current liabilities 114 Current liabilities Liabilities to public 8 402 Trade and other payables 1 914 Lease liabilities 122 Income tax payables 77 Total current liabilities 10 515 TOTAL LIABILITIES 10 629 EQUITY Equity attributable to equity holders of the parent Share capital 125 Fund for unrestricted equity 13 361 Retained earnings -213 Translation difference 83 Result for the year -1 Equity attributable to equity holders of the parent 11 790 TOTAL EQUITY 11 790 TOTAL EQUITY AND LIABILITIES 22 418 1.1.-31.12.2021 EUR THOUSAND Fellow Bank reclassified ASSETS Claims on credit institutions 3 457 Claims on the public and public sector entities 13 439 Intangible assets and goodwill 1 403 Property, plant and equipment 268 Other assets 2 560 Accrued income and prepayments Income tax assets 81 Deferred tax assets 1 032 ASSETS TOTAL 22 418 LIABILITIES Debt securities issued to the public 8 402 Other liabilities 1 567 Accrued expenses and deferred income 583 Income tax liabilities 77 LIABILITIES TOTAL 10 629 EQUITY Share capital 125 Fund of invested non-restricted equity 13 361 Translation difference -1 Retained earnings -1 695 EQUITY TOTAL 11 790 LIABILITIES AND EQUITY TOTAL 22 418 32 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements In other respects, no new accounting principles have been introduced in the reporting period that would have a material impact on these Financial Statement Bulletin financial data. In the preparation of the financial information, the same accounting principles and calculation methods have been followed in other respects as in the preparation of the consolidated financial statements of Fellow Finance for the fiscal year ending on December 31, 2021. Consolidation principles In addition to the parent company, the consolidated financial statements include all the companies in which Fellow Bank Plc has control (subsidiaries). Fellow Bank Plc has control in a company if it is exposed to, or has rights to, the variable returns of an investee, and can affect the amount of returns it receives by using its power related to the investee. Companies acquired during the financial year are consolidated to the consolidated financial statements from the moment they are acquired, and consolidation ends when Fellow Bank loses its control over the company. The consolidated financial statements have been prepared using the acquisition method. The consideration transferred, the identifiable assets of the acquired entity and liabilities taken for liability are valued at fair value at the time of acquisition. Any goodwill shall be recorded in the amount by which the cost exceeds the Group’s share of the fair value of acquired assets and liabilities at the time of acquisition. Expenditure related to acquisition has been recorded as an expense. The financial statements of subsidiaries are adjusted if necessary to correspond with the principles applied in the preparation of the consolidated financial statements. All intra-group transactions, assets and liabilities, and income and expenses from transactions between Group companies, are eliminated as part of the consolidation process. Segment reporting Fellow Bank has only one reportable operating segment. The reported segment covers the entire group and the segment figures are consistent with the figures of the Fellow Bank Group and the management’s reporting. Currencies and foreign Group companies The bookkeeping and reporting of Group companies is carried out in the currency of their operating environment (operating currency). The consolidated financial statements are presented in euros, which is the operating l and presentation currency of the parent com - pany. The importance of international operations to the group’s financial position is minor. During the accounting period, the group had active business operations abroad in Germany, Denmark and Poland. In the fiscal year, it was decided to focus on international markets only on Danish and German business. In the consolidated financial statements, the income statements of foreign subsidiaries are converted into euros at the average rate of the financial year, and balance sheets are converted at the exchange rate of the balance sheet date. The difference in average exchange rates resulting from different exchange rates in the comprehensive income and balance sheet is recognised in other comprehensive income. The conversion differences arising from the consolidation of foreign subsidiaries and from post-acquisition cumulative changes in equity items are recognised in other comprehensive income. Transactions denominated in foreign currencies are recognised in the operating currency using the exchange rate of the transaction date. Monetary items are translated into operat - ing currency using the exchange rates at the end of the reporting period. Non-monetary items are measured at the exchange rate on the date of the transaction. Foreign currency transactions are translated into the operating currency using the exchange rates prevailing on the date of the transaction. Monetary items are translated into the operating currency using the exchange rates at the end of the reporting period. Foreign exchange gains and losses incurred from payments related to transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at the exchange rate prevailing on the balance sheet date, are recognised in profit or loss. Foreign exchange gains and losses are presented in the income statement under net income from securities transactions. Financial assets and liabilities The Group’s financial assets and liabilities are classified in accordance with IFRS 9 Financial Instruments. Financial assets According to the IFRS 9 Financial Instruments standard financial assets are measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss. In connection with the initial recognition, the financial assets are classified into one of the following three categories: 33 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Financial assets that are classified at fair value through other comprehensive income • The company has no financial assets to be recognized at fair value through comprehen - sive income. Financial assets that are classified at fair value through profit or loss • The company has no financial assets to be recognized at fair value through comprehen - sive income. The Group’s financial assets measured at amortised cost until April 1, 2022: • Short- and long-term loan receivables • Accounts receivables • Receivables from receivables from customer accounts • Cash and cash equivalent The company’s lending took place until April 1, 2022 from the balance sheet of the subsidiary Lainaamo Oy. Lainaamo Oy acted as one of the loan investors on the peer-to-peer lending and crowdfunding platform maintained by the Company. In April 2022, the credit portfolio of Lainaamo Oy’s balance sheet was sold to the parent company Fellow Bank. The Group’s financial assets measured at amortised costs as of April 2, 2022: • Cash and cash equivalents • Claims on credit institutions • Claims on the public and public sector entities The reclassifications of items are described in more detail in the New accounting principles section. The classification and measurement of financial assets are based on the business model and an assessment of cash flow characteristics (SPPI test). Assessment of business models Fellow Bank has defined the business models it applies to financial instruments based on their intended purpose. The business model reflects how a group of financial instruments is managed in a business unit in order to meet financial objectives. The business model is not assessed on an individual instrument basis; instead, it is based on classes of financial assets grouped by the management. The business models defined by Fellow Bank depend on how well the company manages a financial asset class and whether the management intends to hold financial assets to collect cash flows, for trading, or both. According to the business model applied to financial assets by Fellow Bank, financial instruments are managed in order to collect contractual cash flows. The Merger that took place in April 2022 did not change the business model from the point of view of the accounting treatment of financial assets. The solely payments of principal and interest (SPPI) test The objective of the SPPI test is to evaluate the contractual cash flow characteristics of a cash asset, and to pass the SPPI test, cash flows must be solely payments of principal and interest. Fellow Bank assesses the contractual terms of financial assets in order to determine whether they pass the SPPI test. If the contractual terms of the financial assets contain other terms that are not related to the primary loan arrangement and that do not consist only of principal payment and payment of interest on the remaining principal, the financial assets will be measured at fair value through profit or loss. If a financial asset does not pass the SPPI test, the agreement terms must cause a greater than minor exposure to risks or volatility in contractual cash flows. Fellow Bank’s financial assets pass the SPPI test and their contractual terms meet the SPPI criteria. Financial assets measured at amortised cost A financial asset is measured at amortised cost if the item is held as part of a business model that aims to hold financial assets in order to collect contractual cash flows, and the cash flows are solely payments of principal and interest. Such items in Fellow Bank include e.g. loans to customers and purchased peer-to-peer loan portfolios. Financial assets measured at amortised cost are initially recognised at fair value inclusive of expenses immediately caused by the acquisition, such as loan broker commissions. After initial recognition, the items are measured at amortised cost using the effective interest rate method. This refers to the interest rate at which the future payments that are expected to become payable or receivable during the financial instrument’s expected exercise period are discounted at the financial instrument’s net book value. Fellow Bank does not grant signifi - cantly long loans, such as mortgages. The book value is adjusted by a credit loss provision using the expected credit loss measurement model (see next section on impairment of financial assets). Reclassification and derecognition of financial assets Financial instruments are reclassified only if a business unit’s business model changes substantially. The Merger that took place in April 2022 did not change the business model from the point of view of the accounting treatment of financial assets. Financial assets and 34 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements liabilities are recorded according to the trading date. Previously recorded profits and losses are not modified retroactively. Financial assets and liabilities shall be offset and presented in net terms on the balance sheet only when the Company has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. There are no offset items in the consolidated balance sheet. A financial asset is derecognised from the balance sheet only when the contractual rights to the asset’s cash flows cease to exist, the contract is terminated, or the asset is transferred to another party and the transfer fulfils the requirements of derecognition. Financial liabilities According to the IFRS 9 Financial Instruments standard financial liabilities are initially recog - nised at fair value at trade date based on the consideration received inclusive of expenses immediately caused by the acquisition. After initial recognition, financial liabilities such as bonds issued by the Company and other financial liabilities are measured using the effective interest rate method at amortised cost. In connection with initial recognition, financial liabilities are classified into one of the following items: Financial assets that are classified at fair value through profit or loss • The company has no financial assets to be recognized at fair value through comprehensive income. The Group’s financial liabilities measured at amortised cost until April 1, 2022: • Liabilities to credit institutions • Liabilities to the public • Accounts payable The Group’s financial liabilities measured at amortised costs as of April 2, 2022: • Liabilities to the public and public sector entities • Debt securities issued to the public The reclassifications of items are described in more detail in the New accounting principles section. Derecognition of financial liabilities The Company must derecognise a financial liability or part of it from its balance sheet only if the liability has ceased to exist, in other words when the obligation specified in the contract is either discharged or cancelled or expires. Fellow Bank derecognises financial liabilities when the obligation specified in the contract is discharged. Impairment of financial assets The impairment model applied by the Company is based on calculating expected credit losses (ECL). In the Company, expected credit loss calculation is applied to financial assets measured at amortised cost, the most substantial part of which is loan receivables from customers. Impairments also concern off-balance sheet commitments, such as unused credit facilities related to overdraft facilities. Impairment is not applied to financial assets measured at fair value, unless they are measured at fair value through comprehensive income. A simplified impairment model is applied to accounts receivable. The key components of the model based on expected losses are assessing substantial credit increases in credit risk, and the expected credit loss calculation model. The calculation model used by the Company is based on the historically verified credit risk of loans by risk class, historically verified quantitative factors that correlate increases in credit risk, and estimates provided by a forward-looking macroeconomic model. Expected credit losses (ECL) are calculated using the following formula with weighted probabilities: EAD (amount of exposure at the time of default when realisation of collateral is included) * PD (probability of default) * LGD (loss % of exposure). The ECL is an indicator of the Company’s estimate of how much less cash flow it will receive on the loan than it should under the contract. A three-stage model is used to determine credit losses. In the first stage, the likelihood that the debtor will experience payment issues within the following 12 months is estimated. Stage 1 includes items where credit risk is estimated not to have materially increased after initial recognition or the credit risk of the item is estimated to be low. If the debtor’s credit risk has materially increased after initial recognition, expected credit loss is estimated for the entire duration of the contract (stage 2). Assets in stage 3 are assets with impaired value regarding which matters have already come to light that will have a negative impact on future cash flows, including the insolvency of the counterparty. The interest income on financial assets is presented for gross principal for financial assets in stages 1 and 2, and for net principal, i.e., after provisions, for items in stage 3. 35 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Evaluation of substantial increase in credit risk A key component of the ECL model is the analysis of counterparties’ credit risks and changes in credit risks that take place after a loan is granted. For individual loans, the Company moni - tors various quantitative factors, and macroeconomic trends that are estimated to be of significance in evaluating default risk. In these estimates, factors that are accessible without unreasonable expenses and effort are generally considered. In the event of a substantial increase in credit risk, receivables are classified based on the increase in the risk level of the loan receivable to stages 2 and 3. Characteristics of loans classified as stage 2 If a loan’s credit risk has increased substantially since the loan was issued, the exposure’s risk level is raised to stage 2. In stage 2, the expected credit loss of the exposure or loan is estimated for the entire exercise period. The following criteria indicate that credit risk has increased substantially: • The payments on a receivable are delayed by more than 30 days, for non-technical reasons. • Changes in the counterparty’s financial position, such as a substantial deterioration of creditworthiness and financial status. • Other characteristics that have a substantial impact on credit risk or the value of col - lateral. Characteristics of loans classified as stage 3 Individual loans whose values have verifiably declined are recognised in stage 3. One or several events have come to light with respect to the counterparty that will have a negative impact on future cash flows. These can include one of the following, for example: • Payments (repayment or interest) are delayed by more than 90 days. • The debtor’s bankruptcy or liquidation, or other significant financial difficulties. • The debtor is declared insolvent. Evaluation of elevated credit risk and insolvency In the Company, the application of elevated credit risk and insolvency criteria are primarily based on (in addition to the above-mentioned criteria) the delay in credit repayment, i.e., the number of days of delay. Technical past due situations are not considered in the evaluation of payment delay. A technical past due situation can be considered to have occurred if it results from an error or system error of the Company, including failure of the payment system, delay in allocation of the payment on the customer’s account, or any other similar situation. With respect to exposures, the Company applies the insolvency definition in relation to all the borrower’s payment obligations, meaning that if there are defaults for one exposure, then all exposures to that debtor should be considered defaulted. The Company applies product-specific, euro-denominated thresholds to the volume of the default. In order to evaluate the elevated credit risk associated with larger loans (business financ - ing), the Company regularly monitors other factors that can cause credit risk to increase in addition to delayed payment, including substantial changes in the company’s financial position, delays in payment of purchase invoices, and changes in external credit ratings or changes in collateral situation. For these, the Company uses the monitoring services of credit information registers, which provide alerts on defaults and changes in credit rating of credit customers. The Company reviews the situation of the credit portfolio monthly (delayed payments, negative changes in creditworthiness, notified customer defaults, collateral shortfalls and setting of additional collateral), and updates the estimated increase in credit risk for these loans, if necessary. Recognition of impairment as realised credit losses An impairment is recognised as a credit loss and written down in the balance sheet when the loan receivable has been sold to a third party at a discounted price, the debtor has been found insolvent in bankruptcy proceedings, it has closed operations, or the receivable has been waived in a voluntary or statutory loan arrangement. Calculation model for expected credit losses Expected credit losses is an estimate, with weighted probabilities, of the difference between the following cash flows: contractual cash flows of the exposure – the cash flows that the bank expects to receive from a contract. The following formula is used to define the expected credit loss: ECL (expected credit loss) = PD (probability of default) * LGD (total loss when realisation of collateral is included) * EAD (amount of exposure at the time of default when realisation of collateral is included). PD, LGD and EAD are evaluated separately for each contract and for each forthcoming year during the lifetime of each evaluated contract. These three components are multiplied together. The income received for each upcoming year (stages 2 and 3) or for only the first year (stage 1) is discounted at the time of reporting and added together. The discount rate applied in the ECL calculation is the effective interest rate of the repayment plan under the original contract. 36 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Determining the probability of default The probability of default (PD) is the likelihood that the borrower will default on its future obligations within the following 12 months. The probability is defined separately for the subsequent years during the lifetime of the loan. For stage 2 and 3 loans, the annual prob - ability of default is considered for the entire lifetime of the loan, while for stage 1 loans, the probability is considered only for the first year. For consumer loans and corporate loans, the starting point for the PD percentage is defined as the proportion of non-performing loans of the loans historically issued by the company in each risk category, taking account of the payment history and the amount of time that the loan has already been repaid at the time of reporting. The PD figures are updated every six months. A high overall number of issued loans allows the PD percentage to be evaluated reliably for each risk category. In addition, in the PD evaluation of stage 2 loans, the debtor’s increased likelihood of default at the time of reporting on the basis of the debtor’s payment delay at the time, taking into account all the debtor’s loans and any payment arrangements that have been agreed upon, is taken into account. Amount of exposure at the time of default The amount of exposure associated with a receivable at the time of default is defined as the unpaid principal of the receivable and the interest accrued at the time of reporting. A portion equivalent to the collateral coverage ratio of the collateral connected to the receivable is deducted from this value. The collateral coverage ratios of the collateral of the receivable are estimated in accordance with separate guidelines on the measurement of collateral, and these are updated regularly. Furthermore, for credit facility-type receivables, an estimate of the portion of the debtor’s unused credit facility that the debtor will draw down during the following year is added to the exposure associated with the receivable. These off-balance sheet exposures and the associ - ated credit loss provision are calculated and reported separately. Effects of macroeconomic developments on the probability of losses The determination of the final PD percentage also takes into account the impact of a forward- looking macroeconomic model. In the applicable macroeconomic model, the key variable is the unemployment rate and its development. A forecast produced by the Ministry of Economic Affairs and Employment is used as the basis for the future performance estimate. The Company evaluates macroeconomic trends and forms three scenarios based on them: a basic, negative and positive scenario. The scenarios estimate the probability with which the macroeconomic variable that correlates with the default risk of the target market performs as expected in the future. The effects of the scenarios on the PD percentage based on risk class are weighted in accordance with the Company’s view. Definition of total loss in a default situation Loss given default (LGD) determines the total loss in a payment default situation. The most important variables that influence the calculation model with respect to LGD are the likely sale price of non-performing loans to collection agencies based on contracts that are in force with agencies, an evaluation of repayments of loans as a result of collection measures, and the payment delay on the loan at the time of reporting. Application of the loss allowance model The probability of losses from stage 1 loans is defined by risk category and adjusted by the weighting of the macroeconomic scenario model. The probability of losses and the overall expected loss given default are applied to the cash flow statement of the loans for the next 12 months, which is discounted to the present value. In stage 2, the probabilities of credit losses are first determined by risk category, after which they are adjusted by the weighting of the macroeconomic scenario model, and by the coefficient reflecting the observed increase in default risk. The probability of losses and the overall expected loss given default are applied to the loans’ discounted cash flow statement for the entire exercise period. In stage 3, the loans’ probability of loss is 100 per cent. The exercise periods of non-per - forming loans are evaluated and the cash flows, which are adjusted by the overall expected loss, are discounted to the present value. The results produced by the calculation model are reported regularly in the Group’s Management Team and Board of Directors. The Group’s financial administration together with the Group risk management evaluates credit risks and maintains the calculation model. 37 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Recognition of actual credit losses A loan is recognised as an actual credit loss when it is likely that the corresponding amount will no longer be obtained. Generally, the credit losses of unsecured loans are recognised when the receivable falls due and the loan is terminated (generally when the payment delay exceeds 90 days), after which the receivable is sold to a collection agency. Alternatively, a credit loss can be recognised when the debtor is declared insolvent, for example due to filing an application for debt restructuring, or due to other circumstances on the basis of which the debtor is declared insolvent. The credit losses of secured receivables are recognised no earlier than when the collateral has been realised and allocated to the receivable. Even then, the final receivable is not necessarily recognised as a credit loss if a payment plan has been set up for it. Even though the receivable is recognised as a credit loss, the collection will still continue as post-collection. After the recognition of the credit loss of an individual loan, the loan in question is no longer included in the calculation of expected credit losses, and therefore, impairment recognition is no longer carried out on it. Impairment model for accounts receivable On its crowdfunding and peer-to-peer lending platform, the Company applies a simplified impairment model in determining the impairment of fee receivables (accounts receiv - able) charged from borrowers. In the model, impairment is calculated using impairment percentages determined for individual products and markets that are tiered according to the payment delays of the accounts receivable at the time of reporting. The applicable impairment percentages reflect the Company’s evaluation of the default risk posed to these accounts receivable as estimated on the basis of realised historical credit losses. Group income The group’s income consists of net interest income, net fee and commission income, net income from investing activities and other operating income. Interest income and interest expenses Interest income and expenses arising from financial assets and liabilities are essentially recorded using the effective interest method in the profit and loss account in net interest income. Fees that form a significant part of the effective interest rate on financial assets or liabilities, such as loan brokers commissions, are recognised using the effective interest method on the income statement under net interest income. Commission income and expenses According to the nature of the service, the fees are recognised either over time or at one point in time, as a rule, on a performance basis, at one point in time, when control over the performance obligations of the services has been transferred to the customer. Account management fees and the continuous commission for loans are recognised as income over time. In these services, the customer benefits from the service as it is produced. Fees for payment reminders are recognised as revenue at one time. A credit loss provision is applied to account management fees and fees for payment reminders because the receipt of these fees is subject to uncertainty. The opening commissions of the loans are recognised as revenue over time and the payment obligation is fulfilled when the loan is drawn down. The amount of opening fees is small. Additionally, the company collects other fees for additional services used by the borrower, such as changes in the repayment plan. These are charged to the borrower, as a rule, for the loan when the borrower changes the payment program or is added to the next loan repayment bill as a separate fee. Fee expenses consist of, among other things, from external data sources utilized in the lend - ing and loan management process and from bank charges of customer reserve accounts in the peer-to-peer lending business. The Company practiced crowdfunding and peer-to-peer lending business until the Merger. After the merger, no new crowdfunding or peer-to-peer loans have been brokered. In the crowdfunding and peer-to-peer lending business the Company mainly acted as an agent of sold products, in which a loan investor (other party) is arranged to provide services (the loan) to the borrower (the customer). The Company also collects from the borrowers a recurring fee for peer-to-peer loans, which is formed from the difference between the interest received by the loan investor and the interest paid by the borrower (2%). This the fee is charged to the company when the borrower pays the loan interest together with the repayment of the loan capital. From the loan investor the company collects secondary market fees on the loan sold in the secondary market. The Company charges a secondary market fee from loan investors for selling loans on the secondary market. In secondary market trading, the seller of the loan pays the fee, which is deducted from the amount paid to the seller for the sale. 38 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Investment income Recurring income from investments, valuation profit and losses and sales profit and losses are recorded as investment income. In addition, exchange rate income and expenses are recorded in this group. Other operating income Income that does not fall under the previous items is recognised as other operating income. Intangible and tangible assets Intangible assets Intangible assets mainly consist of internally created information systems, related develop- ment work and intangible assets related to customer relationships recorded in the balance sheet in connection with business acquisitions. Intangible assets are recognised in the bal - ance sheet at cost if their acquisition cost can be reliably measured and if it is probable that the intangible asset will produce future economic benefits. Expenses that were recognised in accordance with the requirements of IAS 38 Intangible Assets with respect to the own work portion related to IT projects were capitalised under data systems. Intangible assets are amortised on a straight line basis over their estimated useful economic lives. Amortisation periods of intangible assets: Data systems and licence fees: 3–5 years. The Group evaluates the amortisation periods and amortisation methods at least at the end of each financial year. The amortisation is commenced when an asset is ready to be used. The unamortised acquisition cost of an asset is fully amortised in one single step if it is deemed that the intangible asset is no longer of benefit to the Group. If the benefit is deemed to have declined substantially in relation to the unamortised acquisition cost, then an impairment is recognised. Separately acquired intangible assets are measured upon initial recognition in the accounts at acquisition cost. After the initial recognition, intangible assets are recognised at acquisition cost less accumulated amortisation and accumulated impairment losses. With the exception of capitalised development costs, internally generated intangible assets are not capitalised, and expenses related to them are reflected in profit or loss for the period in which the expenses were incurred. Goodwill The goodwill generated in business combinations is recorded in the amount by which the transferred consideration exceeds the fair value of the acquired net assets. Goodwill is tested annually and when an event or change in circumstances shows that the balance sheet value may not be recoverable. Depreciation according to the plan is not recorded on goodwill. For impairment testing, goodwill is allocated to cash-generating units, or if it is a subsidiary, the goodwill is included in the acquisition cost of that subsidiary and the subsidiary forms a cash-generating unit. If for a cash-generating unit the amount of recorded goodwill exceeds the recoverable amount, the difference is recorded as a impairment. Tangible assets Tangible assets consist mainly of ICT equipment and office furniture. Tangible assets are measured at historical cost less accumulated depreciation and any impairment. Acquisition cost includes the costs that are directly caused by the acquisition of the tangible asset in question. Tangible assets are depreciated using the straight-line method based on their estimated useful economic lives. Depreciation times of tangible assets: Machinery and equipment: 4 years. The estimated useful lives and residual values are checked at least on the end date of each financial year. If these differ substantially from previous estimates, the depreciation periods are changed accordingly. Depreciation is discontinued when an asset is classified as for sale. Sales profits or losses arising from the retirement of fixed assets are calculated as the difference between the selling price and the book value and are recognised through profit or loss in other operating income or costs. Impairment of tangible and intangible assets In connection with the financial statements, the management reviews the impairment of tangible and intangible assets. Impairment tests require the management team’s discretion and assessment of the amount of money accrued by the asset in the future, its financial useful life and used discount rate. 39 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Right-of-use assets and lease liabilities According to IFRS 16, a lease is a contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At the inception of a contract and in situations in which the terms of a contract are amended, the Company evalu - ates whether the contract contains a lease. Fellow Bank assesses control of use on the basis of the following criteria in accordance with IFRS 16: the contract contains an identified asset in which substantially all the economic benefits from use of the identified asset are directed to Fellow Bank, and Fellow Bank has the right to direct the use of the asset. The lease term begins at the starting time specified in the lease. The date of termination of the lease is the date of termination according to the lease. If the lease is of an indefinite duration, the date of termination is evaluated on a lease-by-lease basis. The evaluation is based on the Company’s strategic situation and on costs that would arise if a leased asset were replaced by another asset. IFRS 16 contains two exemptions that facilitate recognition and measurement. Fellow Bank has elected that leases with a term of 12 months or less and right-of-use assets of a value of no more than approximately EUR 5,000 are not recognised in the balance sheet. These short- term leases and right-of-use assets of low value are directly expensed during the lease term. Right-of-use assets Fellow Bank’s leases that are capitalised in the balance sheet are based on the Company’s leased premises and parking spaces. At the starting time of the lease, right-of-use assets are measured at acquisition cost, which is based on the original nominal value of the lease liability. After the original measurement of fixed assets, fixed assets are measured at original cost less accumulated depreciation and actual impairment. Right-of-use assets are depreci - ated during the lease term and the depreciation is recognised as expenses in the income statement under depreciation, amortisation and impairment. Lease liabilities At the starting time of the lease, the original nominal value of the lease liability consists of the current value of leases payable during the lease term, discounted by the interest rate on Fellow Bank’s additional credit. After the original nominal value of the lease liability is determined, lease liabilities are measured at the original nominal value less the principal portion of paid lease payments. The amount of the lease liability is reassessed if future lease payments change because of an index or price change, or as a result of an extension of the lease term, for example. If the amount of the lease liability is adjusted in conjunction with the reassessment, a corresponding adjustment will also be made to the right-of-use assets item. Interest expenses caused by the lease liability are recognised in the income statement under financial expenses. Lease payments are discounted using the incremental borrowing rate because interest rates are not available for leases. The Group’s incremental borrowing rate is determined on the basis of received financing offers and market conditions and is reviewed annually. The business premises lease agreement does not include options to extend, and any options to extend will be taken into account if the management considers it likely that they will be used. Income taxes Income taxes comprise current and deferred tax. The current tax for the period is recognised in the income statement. Current tax is calcu - lated for the period in accordance with the regulations of each country on the basis of the enacted tax rate. The tax liabilities or receivables that are based on the taxable profit for the period are recognised for the amount that is expected to be paid to the tax authorities or to be received from them as credit. The amount is determined using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date in countries in which the Group operates and produces taxable income. The Group will recognise a deferred tax asset for deductible temporary differences only to the extent that it is probable that taxable income will be produced in the future against which the Group can utilise the temporary difference. The amount of the deferred tax asset and the probability that the deferred taxes can be utilised are re-evaluated at the end of each reporting period. Earnings per share The undiluted earnings per share are calculated by dividing the profit for the financial year attributable to the parent company’s shareholders by the average number of outstanding shares during the period. When calculating the diluted earnings per share, the figures used in the calculation of the undiluted earnings per share are adjusted in order to take account of the after-tax impact of any items recognised through profit or loss in relation to ordinary shares, and also the weighted average number of the ordinary shares that would have also been outstanding if all dilutive potential ordinary shares had been converted into shares. 40 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements If the profit for the presented periods is negative, the earnings per share adjusted by the dilutive effect is the same as the undiluted earnings per share. Employment benefits Employee benefits consist of short-term employee benefits and benefits related to termina- tion of employment. Short-term employment benefits such as salaries and fringe benefits, annual holidays and performance bonuses are expected to be paid in full within 12 months from the end of the accounting period during which the employees perform the relevant work. Benefits based on termination of employment consist of severance pay. Fellow Bank has a share-based incentive program for the group’s key personnel, where payments are partly share-based and partly as cash. The monetary contribution aims to cover the costs incurred by the key person from the remuneration taxes and tax-related payments. The benefits granted in the arrangement have been valued at the fair value at the time of their grant and recorded as an expense in the income statement for the period in which the employee has fulfilled the conditions. The amount to be recorded as an expense is based on an estimate of the number of the shares to which the right is expected to arise. The benefits are fully recorded as share-based program and the expense is carried forward over the entire period of the right. The expense is recognised under personnel expenses. On each reporting date, the Company revises its estimates on the amount of shares. The impact of the revision is recorded in income statement. The amount to be recorded as an expense will be adjusted later to correspond to the number of shares finally granted. The requirements of the IFRS 2 Share-based payments standard apply to the incentive system. Equity Equity consists of share capital, the invested unrestricted equity reserve, translation differ- ences and retained earnings. Matters requiring management judgement and estimation The drawing up of financial statements in accordance with IFRS standards requires that certain accounting assessments are made. In addition, management must use its judgement. Judgement affects the choice of accounting policies and their application, the amount of assets, liabilities, income and expenses to be reported and the notes that must be presented. The management will exercise its judgement on the basis of estimates and assumptions that are based on earlier experience and the best view available to it on the balance sheet date concerning future performance. Estimates and decisions based on judge - ment are constantly monitored and they are based on actual performance and certain other factors such as expected future events that are reasonably anticipated to occur considering prevailing circumstances. Actual performance may deviate from estimates. The accounting of expected credit loss in accordance with IFRS 9 is based on internal models that contain an assumption of a change in credit risk and probability of default. Information focusing on the future is also taken into account, as well as an evaluation of the perfor - mance of macro variables in various scenarios, and of the probability of each scenario taking place. Furthermore, in the determination of expected credit losses, management judgement is observed in the evaluation of the credit loss provisions of individual corporate loans with overdue payments, while also taking into account the business area management’s analysis of the collateral coverage of the security set for loans, of the progress and situation of collection processes, as well as its overall judgement of a debtor’s ability to pay. The values of intangible assets and goodwill are regularly tested for impairment. Impairment testing requires management’s judgment and assessment of the assets’ futures cash flows and background assumptions. Discretion has been applied in estimating the end dates of premise leases in order to recognise the leases in accordance with IFRS 16. Information on leases is provided in greater detail in the section Tangible assets. New and amended standards applicable in future financial years On the balance sheet date, the company has no information regarding new standards or amendments that are not yet in force, and that are expected to significantly affect the Company’s current or future reporting periods and foreseeable future business operations. 41 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Fellow Bank focuses on retail banking operations and offers selected banking and financial services to both personal and business customers. Customer acquisition is based on both Fellow Bank’s own and its partners digital channels. Risk management plays a key role in Fellow Bank’s operations from the perspective of business management and managing changes in the operating environment. The primary risk categories are credit risk, operational risk, market risk and liquidity risk. The Group’s internal control, risks and risk management and the Pillar III disclosure require - ments pursuant to Part 8 of EU Capital Requirements Regulation (575/2013), are set out in more detail in the Fellow Bank’s Capital and Risk Management Report, which is published as a separate report in conjunction with the annual report. 1. Organisation of risk management The company’s Board of Directors has primary responsibility for the Group’s risk manage- ment. The Board of Directors confirms the principles and responsibilities of risk management, the Group’s risk limits and other general guidelines according to which the risk management and internal control are organised. The company’s risk management is responsible for ensuring that the company’s major risks are identified, evaluated, and measured and that risks are monitored and managed as part of the day-to-day management of the business areas. The company’s Board of Directors regularly assesses the company’s risk management strategy, risk tolerance and approach to risk-taking. The aim is to manage risks through risk assessments and measures, systematic follow-up, and analysis of the operating environment and the market. Functions that are independent of the business areas have been organised in a way that ensures efficient and comprehensive risk management and internal control as follows: • Risk Management function • Compliance function responsible for ensuring compliance with the rules • Internal audit function The aim of the Risk Management function is to promote systematic and proactive risk management that allows the company’s business to be developed in a safe manner. In the company’s organisation the Risk Management function operates directly under the supervi - sion of the CEO and reports to the Board of Directors, the CEO and other members of the senior management. The company’s risk management is founded on the “three lines of defence” model: 1. The first line of defence consists of the business units. The managers of the business units are responsible for ensuring that risk management is at a sufficient level in each respective unit. 2. The second line of defence consists of the Risk Control and Compliance functions. The Risk Control function oversees compliance with the risk limits granted to the business units, as well as compliance with risk-taking policies and guidelines. The Risk Control function reports its observations to the Credit and Risk Committee, the Management Team and the company’s Board of Directors. The Compliance function is responsible for ensuring compliance with regulations in all of the company’s operations by supporting the senior management and the business units in applying the provisions of the law, official regulations and internal guidelines, and in identifying, managing and reporting on any risks of insufficient compliance with the rules. 3. The third line of defence is the internal audit. The internal audit assesses the functioning of the Group’s internal control system, the appropriateness and efficiency of the func - tions and compliance with guidelines. It does this by means of audits that are based on the internal audit action plan adopted annually by the Board of the company. 2. Managing capital adequacy and own funds The objective of Fellow Bank’s capital adequacy management is to secure the sufficiency of the company’s capital in relation to all material risks of its operations. In order to achieve this goal, the company identifies and evaluates all risks relevant to its operations and, based on these, measures its risk-bearing capacity to match the overall risk position. Capital adequacy management process plays a key role in defining the overall risk position. The capital adequacy management process is based on the capital requirements according to Pillar I of the solvency regulation and external risks, such as the interest rate risk of the financial balance and the business risk. Fellow Bank continuously monitors that its equity is sufficient to cover the material risks affecting the company. Capital adequacy and operational risks are monitored by means of monthly reports in the Board of Directors and the Management Team. The reporting focuses on overall capital adequacy and Common Equity Tier 1 capital. The company’s Board of Directors has confirmed an economic target of at least 16 per cent for the overall capital adequacy ratio. The aim is to ensure the sufficiency of capital also during downturns. The total capital requirement for banks consists of a minimum capital requirement of 8.0 % in accordance with Pillar I and an additional fixed capital requirement of 2.5 % in accordance with Act on the Credit Institutions. Fellow Bank Group’s capital adequacy ratio was 16.8 % and the common equity Tier 1 ratio was 12.6 %, exceeding the banks’ total capital require - ment (10.5 %). G2 Note on risk management 42 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements More detailed information on the Group’s capital adequacy is available in the Board of Directors’ Report and in the Capital and Risk Management Report. 3. Credit risk The credit risk of the company’s operations mostly stems from lending to its customers. Credit risk is defined as the risk of loss resulting from loan customers and other counterpar - ties not being able to meet their contractual obligations, and from issued collateral not covering Fellow Bank’s receivables. During Fellow Bank’s first year of operation, the strong growth of the credit portfolio increased the amount of credit risk, but the relative credit risk position has nevertheless remained stable. Fellow Bank’s customers are both private and SME customers. After ending peer-to-peer and crowdfunding business, the company has systematically focused lending on customers with lower credit risk, in accordance with the risk appetite set by the government. Fellow Bank has procedures and guidelines in place for identifying, measuring, managing, and monitoring credit risk. The company’s credit risk management is based on the risk appetite specified in the risk management policy confirmed by the company’s Board of Directors. In addition, the company’s market- and product-specific risk policies specify the minimum criteria that the debtors must meet before a credit can be granted. Fellow Bank applies the standardised approach to the calculation of the credit risk. Fellow Bank applies a definition of default in accordance with the EBA/GL/2016/07 guidelines. The definition is applied at the debtor level. Default is identified on the basis of the debtor’s substantial payment delays, in accordance with the calculation of the days of delay or on the basis of the debtor’s unlikeness to pay back. When the credit is overdue for more than 90 days and the debtor is considered default, the loan is placed in stage three in the ECL calculation. However, not all ECL stage three loans are necessarily default. Default means that the debtor’s overdue loan obligation exceeds both the absolute and relative thresholds and is overdue for 90 consecutive days. About 2/3 of Fellow Bank’s non-performing loans consist of foreign loans, and this position is diminishing. After the end of the financial year, a letter of intent has been signed for the sale of the Polish business. The goal of credit risk management is to limit the effects of risks arising from customer loans to an acceptable level. In lending to consumer customers, the company applies statistical credit risk assessment methods (credit risk models) for assessing the expected default risk. The credit risk models assess the debtor’s estimated default risk based on which the company assigns the debtors one of the five internal risk classes. In addition, the company always assesses the debtor’s ability to pay back based on confirmed monthly income, loan expenses and assessment on the other expenses of the debtor’s household. In lending to businesses, the company assesses the debtor’s credit risk by means of a careful credit analysis process specified in credit policies. The company uses information collected from external sources when evaluating the creditworthiness and ability to pay of business customers. Loans to business customers are monitored throughout the entire life cycle of the loan agreement. If significant changes are detected in the customer’s financial situation, the customership will be taken for more detailed monitoring. Distribution by risk class The company classifies all customers into risk classes based on the information available on the counterparty. The classification is based on the bank’s internal assessment and external credit rating data. Monitoring is continuous and can lead to a transfer from one risk class to another. The risk categories in use are defined as follows: • Risk class 5: Consumer and business customers are included in low risk items. • Risk class 4: Consumer and business customers are included in moderate risk items. • Risk class 3: Consumer and business customers are included in increased risk items. • Risk class 2: Consumer and business customers are included in the second-highest risk items. • Risk class 1: The highest risk items include consumer and business customers and insolvent customers. Other clients are classified on the basis of the bank’s internal risk class assessment. The unrated risk class item includes loans or proofs of claim for which the company has not determined a credit rating or for which no external credit rating is available. LOANPORTFOLIO BY RISKCLASSES 31.12.2022 31.12.2021 Riskclass 5 34 592 823 Riskclass 4 69 316 2 724 Riskclass 3 45 486 2 613 Riskclass 2 9 649 3 581 Riskclass 1 4 750 3 165 Non-performing loans 5 211 Loanportfolio 163 793 18 118 43 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Risk concentrations Risk concentrations arise or may arise, for example, when the credit portfolio contains large amounts of loans and other liabilities directly towards: • single customer or counterparty • group of connected customers • single business industry • against limited amount of collaterals • within same maturity • within same product Risk concentrations are managed at Fellow Bank with the help of set limits, and these are monitored actively as part of the management’s risk report. Fellow Bank’s loan portfolio is focused on personal customers, mainly consisting of smaller loan amounts. With a distributed customer base, the significance of individual large customer risks is minor. At the end of the financial year, the company had one exposure, where the loan amount exceeded 10 percent of Tier 1 own funds, and which has full collateral. Loans to business customers the largest industries are construction, transport and storage, and manufacturing. Most of the business loan portfolio is sales invoice financing. Geographically, the responsibilities are divided in Fellow Bank as follows: EXPOSURE AND HOME COUNTRY 31.12.2022 Amount of credit More than 90 days past due Private individuals Finland 126 393 1 060 Companies and entities Finland 30 993 781 Private individuals EU countries 6 130 4 500 Companies and entities EU countries 277 239 Total 163 793 6 580 In recent years, Fellow Bank has not had a significant amount of active business in foreign markets. For this reason, the proportion of overdue receivables in the remaining foreign loan portfolio is significantly large. The share of the Polish loan portfolio is 3.4 million euros, of which capital credit loss reservation is 3.2 million euros. Poland’s loan receivables are almost entirely included in ECL stage 3. EXPOSURE AND HOME COUNTRY 31.12.2021 Amount of credit More than 90 days past due Private individuals Finland 11 078 628 Companies and entities Finland 1 874 438 Private individuals EU countries 4 895 4 141 Companies and entities EU countries 181 0 Total 18 118 5 207 Loans with payment delays and changes to repayment schedule An operating model for monitoring the loans of customers with payment delays is outlined in the company’s credit policy guidelines. Overdue loans refer to commitments for which repayment of the loan capital is overdue by more than 15 days. In the event of payment delays by consumer customers, the company aims to assist custom - ers to prevent financial difficulties. Consumer customers may be offered payment holidays and changes to the repayment schedule. In lending to businesses, the aim is to find solutions well before the customer’s possible financial difficulties affect their ability to repay the loan. Lending is guided by a policy on credit risk management and credit risk strategy. The company regularly monitors overdue loans and reports them to the company’s manage - ment and Board of Directors. Such loan receivables are also monitored if the customer has significant financial difficulties in fulfilling the repayment. The purpose of monitoring is to detect overdue loans or loans that become problem loans as early as possible. Collaterals and guarantees Loans granted by Fellow Bank to personal customers are almost always unsecured. The credit risk of business lending is managed using collateral and guarantees. Guarantees are applied to exposures in order to secure repayment. In business lending, risk is often hedged by agreeing on a personal guarantee with the customer. The key features of the practices and processes for the assessment and management of eligible collateral are set out in the business lending credit policy guidelines. The collateral received is presented in the group’s note K30. 44 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Credit risk assessment in the calculation of expected credit losses The calculation of expected credit losses, i.e. the ECL calculation (Expected Credit Loss) is applied in the company to financial assets valued at amortized cost, of which the most significant item is loans receivable from customers. The calculation of expected credit losses is carried out monthly at the loan level. In the ECL calculation, the expected credit loss is calculated for each loan on a monthly basis based on the probability of default (PD) and the amount of loss caused by default (LGD). When assessing whether the credit risk related to loan receivables has increased significantly, the change in the risk of defaults occurring during the expected validity period of the financial asset is examined. When making this assessment, the risk of default on the financial asset on the reporting date and the risk of default on the financial asset at the time the loan is granted are compared. A significant increase in credit risk leads to the transfer of the loan from stage 1 to stage 2. A significant increase in credit risk can be caused, for example, by a delay in payments by the borrower for more than 30 days, for reasons other than technical reasons, or changes in the counterparty’s financial position, such as a substantial deterioration of creditworthiness and financial position. Loans are recorded to stage 3 if the credit risk has significantly and provably increased. If there are one or more events that have occurred on the customer side, that will affect future cash flows negatively. These events can be for example: • Payments (amortization or interest) have been delayed for more than 90 days • Bankruptcy or liquidation of the debtor, or other significant financial difficulties • Customer is defaulted. If the customer has clear indications of uncertainty about repayment, the credit can be transferred directly from stage 1 to stage 3 on a discretionary basis. The following tables present the company’s loan portfolio by market and customer segment and by risk class. Risk class 5 represents the lowest default risk, risk class 1 the highest. EXPOSURE TO CREDITRISK BY RISK CLASS STAGE 1 STAGE 2 STAGE 3 TOTAL LOAN RECEIVABLES Risk class 5 33 823 109 660 34 592 Risk class 4 65 375 1 614 2 327 69 316 Risk class 3 41 864 1 672 1 950 45 486 Risk class 2 7 168 591 1 890 9 649 Risk class 1 2 816 261 1 673 4 750 Loan portfolio 151 045 4 248 8 500 163 793 Expected credit losses -1 825 -1 673 -5 639 -9 137 Claims on the public and public sector entities 149 221 2 575 2 861 154 656 EXPOSURE TO CREDIT RISK BY RISK CLASS (31.12.2021) STAGE 1 STAGE 2 STAGE 3 TOTAL LOANS RECEIVABLE Risk class 5 782 42 823 Risk class 4 2 603 121 2 724 Risk class 3 2 425 187 2 613 Risk class 2 3 279 302 3 581 Risk class 1 2 944 222 3 165 Non-performing loans 5 211 5 211 Gross carrying amount 12 032 874 5 211 18 118 ECL reservation -347 -200 -4 160 -4 708 Net book value 11 685 674 1 051 13 409 The calculation of expected credit losses is described in further detail in note K1 to the financial statements, Accounting policies of the consolidated financial statements. More information on the distribution of the credit loss provision and of the different stages of credit risks is provided in note 11, Impairment of receivables.  45 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements 4. Liquidity risk Liquidity risk can be defined as a lack of balance in incoming and outgoing cash flows. The risk may materialise if the company is unable to meet its payment obligations as they fall due. The company’s main liquidity risks arise from the maturity mismatch between borrowing and lending. Fellow Bank’s liquidity risk management is based on its ability to gain enough competitively priced money for the short and long term. An important part of managing liquidity risk is planning a liquidity position for both the short and long term. Furthermore, establishing a liquidity reserve will prepare for market downturns and possible legislative changes. The company’s liquidity reserve target is to cover at least the projected net outflows in a stressed scenario in which deposits flow out. The table below presents the company’s contractual payments for financial assets and liabilities. The cash flows include capital and contractual interest. Liquidity risk management is supported by active risk management, balance sheet and cash flow monitoring and internal accounting models. In order to be able to manage its outgoing cash flows, it is crucial that the company continuously manages its liquidity situa - tion. Sufficient liquidity is ensured by the limit set by the company’s Board of Directors to the company’s cash assets. Liquidity adequacy is monitored and managed with the help of indicators such as: financing maturity differences, deposit outflow, LCR and NSFR ratios, and increase in financing costs. Liquidity indicators are monitored continuously and reported at least monthly to the management team and the Board of Directors as part of risk reporting. The company prepares for the repayment of future debts by limiting new lending in the upcoming years as necessary, thereby ensuring its liquidity position. The company’s liquidity remained stable during 2022. Monitoring and forecasting changes in market factors and market developments also play an important role in the company’s liquidity risk management. If forecasts indicate a decline in market liquidity, the company may set stricter internal limits for liquidity risk management. Liquidity management also includes liquidity reserve management. This ensures that the company has sufficient liquid securities available to cover the collateral needs of its various business areas. Currently, Fellow Bank has no derivative exposures or collateral require - ments. Breakdown of financial assets and liabilities according to maturity 31.12.2022 LESS THAN 3 MONTHS 3-12 MONTHS 1-5 YEARS 5-10 YEARS YLI 10 YEARS TOTAL Assets Cash and cash equivalents 120 528 120 528 Claims on credit institutions 5 941 5 941 Claims on the public and public sector entities 34 233 7 044 61 683 46 831 14 002 163 793 Liabilities Liabilities to the public and public sector entities 197 863 19 335 31 059 0 0 248 257 Lease liabilities 111 111 Off-balance sheet commitments 1 455 1 455 31.12.2022 LESS THAN 3 MONTHS 3-12 MONTHS 1-5 YEARS 5-10 YEARS YLI 10 YEARS TOTAL Assets Cash and cash equivalents 0 0 Claims on credit institutions 3 457 3 457 Claims on the public and public sector entities 9 987 4 717 7 843 2 096 35 24 677 Liabilities Liabilities to the public and public sector entities 810 8 131 0 0 0 8 941 Lease liabilities 29 88 119 236 Off-balance sheet commitments 1 912 1 912 46 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Liquidity risk is measured by a liquidity buffer ratio (liquidity coverage ratio, LCR) and a minimum long-term funding requirement (net stable funding ratio, NSFR). In addition, the development of the liquidity indicators, such as the amount of deposits, the cost of financing and maturity differences, is monitored. The Group’s liquidity coverage ratio (LCR) was at a good level, and was 370% at the end of 2022. The net stable funding ratio (NSFR) was 188,3 % in 2022. The company’s internal risk limit for the LCR and NSFR indicators is 130%. The statutory limit is 100%. Over the past year, the LCR and NSFR indicators have followed a steady and predictable trend. 5. Market risk Market risk consists of interest rate risk on the financial account and foreign exchange risk. The financial balance consists of on- and off-balance-sheet items related to lending and borrowing, as well as a liquidity reserve. Fellow Bank does not trade in shares for trading purposes. No sensitivity analysis of the equity price risk has been presented as it does not have a material effect on the Group’s financial position. Currency risks are maintained at a moderate level to prevent exchange rate fluctuations from causing significant financial losses. The largest currency positions on 31 December 2022 were: PLN (Polish zloty) EUR 0,2 m SEK (Swedish krona) EUR 0,4 m and DKK (Danish krone) EUR 0,9 m A fall of -10% in the exchange rates would cause a valuation loss of EUR 0,15 m. The exchange rate of the currencies above correlates closely with the exchange rate of the euro, which reduces the risk. Altogether 99% of the loan portfolio was in euros. Other items in the balance sheet do not cause material exchange rate risks to the company. Interest rate risk The company’s interest rate risk consists mainly of the interest rate risk on the financial account. Interest rate risk is caused by differences in the interest rates and maturities of assets and liabilities. In addition, market interest rates affect the market prices of securities in the portfolio. At the end of the financial year, the company has no securities in the investment portfolio whose valuation could be affected by changes in market interest rates. The company aims to balance the interest bases of receivables and payables and to reduce unforeseen fluctuations in the interest margin. The pricing of borrowing and lending is a key issue for the development of the company’s interest margin. The company currently has fixed-rate loans for less than half of its loan portfolio, and the share is constantly decreasing. New lending is mainly with variable interest rates and tied to the 3-month Euribor. The amount of interest rate risk is regularly reported to the management team and the Board of Directors. Interest rate risk is monitored and measured regularly by means of interest rate risk limits set by the Board of Directors and by assessing the effects of interest rate shocks on the economic value of equity and net interest income. In the situation at the end of the financial year on 31.12.2022, the sensitivity of the interest rate risk relative to own funds was as follows: If the interest rate level were to rise by two percentage points, the economic value of the company’s own funds would increase by 5.7 per cent due to the positive profit development. If interest rates were to fall by two percentage points, the economic value of own funds would fall by 4.7 per cent. The table below shows the standard scenarios determined by the European Banking Authority (EBA) on interest rate risk change sensitivities. INTEREST RATE SENSITIVITY ANALYSIS 31.12.2022 All rates rise by 200 b.p. 1 336 All rate decline by 200 b.p. -1 116 Short term rates decline by 250 b.p. and long-term rates decline by 100 b.p. -9 Short term rates rase by 250 b.p. and long-term rates decline by 100 b.p. 224 Short term rates rase by 250 b.p 603 Short term rates decline by 250 b.p -403 A more detailed discussion on the disclosure requirements for interest rate risk (Pillar III) is available in the Group’s Capital and Risk Management Report. 6. Operational risk Operational risks mean a direct or indirect danger of financial loss that is caused by insuf- ficient or failed internal processes, systems, personnel or external factors. Operational risks also include legal risks and compliance and data security risks. The Board of Directors adopts the principles for the management of operational risks on an annual basis. In operational risk management, the company’s main objective is to manage reputational risk and ensure business continuity and regulatory compliance in the short and long term. Operational risk management ensures that the company’s values and strategy 47 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements are implemented throughout the business operations. Operational risk management covers all material risks related to the business. Operational risk management is applied in all the business units of the company by identifying, measuring, monitoring, and assessing the operational risks associated with each unit. Business units also assess the likelihood of risks and their impacts if they materialise. The company-wide process enables management to assess the potential loss arising from operational risk in the event of a risk materialising. As part of its operational risk management, the company aims to reduce the likelihood of operational risk events through internal guidelines and staff training. Each employee is responsible for managing operational risk in their own duties. Any operational risks that have materialised are reported to the management of the business unit. New products, services and suppliers of outsourced services are separately approved through the company’s formalised approval process before they are introduced. The approval process ensures that the risks associated with new products and services are appropriately identi - fied and assessed. The same approval process will also apply when existing products are developed. Operational risks are monitored, managed, and reported in the company’s risk management. At least annually, the company’s management receives the risk assessments of the business units and a report on the materialised risks, which are used to compile a separate report to the Board of Directors. The process created will enable the Board of Directors to gain an overview of the operational risks faced by the business and their potential impact on the company. 7. Responsibility  sector plays an important role in building the economic and social stability of society, as well  Fellow Bank has high standards when conducting its business. Fellow Bank requires its business units and personnel to have a good understanding of compliance with applicable laws, regulations and standards in all markets and jurisdictions and strictly follows them, in which Fellow Bank operates. For Fellow Bank, the well-being and commitment of the personnel are in a key position. We measure employee satisfaction regularly and actively make improvements based on the results. Our work community is equal, we do not accept discrimination in any form. We are committed to promoting equality and non-discrimination in all activities. Customer satisfaction is in a key position, and Fellow Bank strives to communicate clearly and understandable to its customers. In personal and business customer lending, the aim is     Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements Notes to the income statement GK3. NET INTEREST INCOME 2022 Adjusted 2021 Interest income Receivables from credit institutions 480 0 Claims on the public and public sector entities 10 622 3 244 Other interest income 0 171 Total interest income using the effective interest method 11 101 3 415 Interest expenses Liabilities to credit institutions -219 0 Liabilities to the public and public sector entities -1 520 -291 Debt securities issued to the public -283 -456 Other interest expenses -25 -18 Interest expenses, total -2 048 -766 Net interest income 9 053 2 650 GK4. FEE AND COMMISSION INCOME AND EXPENSES 2022 Adjusted 2021 Fee and commission income Lending 1 615 0 Peer to peer lending 2 161 7 443 Other fee and commission income 108 0 Fee and commission income, total 3 885 7 443 Fee and commission expenses 2022 Adjusted 2021 Lending -1 024 0 Peer to peer lending -1 108 -2 946 Other fee and commission expenses -242 0 Fee and commission expenses, total -2 374 -2 946 Timing of revenue recognition 2022 Adjusted 2021 At a point of time 1 062 1 039 Over time 2 822 6 404 Total 3 885 7 443 49 Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements GK5. NET INVESTMENT INCOME 2022 Adjusted 2021 Financial assets held for trading 0 0 Financial assets at fair value through profit or loss -118 0 Exchange rates losses -232 0 Net investment income, total -349 0 2022 Net investment income from securities transactions by instrument Gains and losses on sales Changes in fair value Total Debt securities Shares and derivative contracts -118 0 -118 Net income from securities transactions, total -118 0 -118 Exchange rates losses -232 0 -232 Net investemt income, total -349 0 -349 Adjusted 2021 Net investment income from securities transactions by instrument Gains and losses on sales Changes in fair value Total Debt securities 0 Shares and derivative contracts 0 Net income from securities transactions, total 0 Exchange rates losses 0 Net investment income, total 0 50 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements G6. OTHER OPERATING INCOME 2022 Adjusted 2021 Allowance received 0 41 Other income 24 0 Other operating income total 24 41 G7. PERSONNEL EXPENSES 2022 Adjusted 2021 Salaries and fees -4 468 -2 733 Pension expenses -624 -411 Other social security costs -235 -160 Share based payments -51 -165 Activation of personnel costs -0 221 Personnel expenses total -5 378 -3 248 Number of personnel, average Number of personnel during the period, average 80 66 Board fees 2022 Adjusted 2021 Markku Pohjola Fellow Bank Plc, Chairman of the Board, beginning 2 April 2022 -40 Karri Haaparinne Fellow Finance Plc, Member of the Board until 1 April 2022 -8 -8 Lea Keinänen Fellow Bank Plc, Member of the Board beginning 2 April 2022 -27 Kai Myllyneva Fellow Finance Plc, Member of the Board until 1 April 2022 Fellow Bank Plc, Member of the Board beginning 2 April 2022 -37 -25 Jorma Pirinen Fellow Bank Plc, Member of the Board beginning 2 April 2022 -29 Teuvo Salminen Fellow Bank Plc, Member of the Board, vice-chairman of the Board beginning 2 April 2022 -32 Michael Schönach Fellow Bank Plc, Member of the Board, vice-chairman of the Board beginning 2 April 2022 -8 -8 Harri Tilev Fellow Finance Plc, Member of the Board until 1 April 2022 -8 -18 Tero Weckroth Fellow Finance Plc, Member of the Board until 1 April 2022 Fellow Bank Plc, Member of the Board beginning 2 April 2022 -35 -8 Board fees total -223 -65 CEO salaries and fees 2022 Adjusted 2021 Salaries and fees -125 -190 Share based payments 0 0 CEO salaries and fees total -125 -190 Executive group salaries and fees 2022 Adjusted 2021 Salaries and fees -573 -545 Share based payments -33 -81 Executive group salaries and fees total -606 -625 51 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Share-based incentive system The board of Fellow Bank Plc has decided on the share-based plan for the group’s key person- nel from the incentive system, to which the group has applied IFRS 2 Share-based payments standard requirements in the accounting period. The new share bonus system replaces the Fellow Finance option programs in use before the merger, Option Program 2019 and Option Program 2020. The old option programs were terminated. The target group of the share bonus system includes around 14 key person including members of the management team. The purpose is to combine the goals of the owners, management and personnel to increase the company’s value in the long term, as well as to commit participants to the company and offer them competitive incentive systems based on earning and accumulating company shares, which support Fellow Bank’s strategy. The valuation-based share bonus system 2022 has one earning period that started on July 4, 31.12.2022 31.12.2022 31.12.2021 31.12.2021 PROGRAM Share bonus system 2022 A Share bonus system 2022 B Option program 2019 Option program 2020 TYPE Share unit Share unit Option Option Grant date 4.7.2022 4.7.2022 19.6.2019 20.10.2020 Maximum contractual life 31.3.2024 31.3.2024 28.2.2023 1.5.2025 Remaining contractual life, years 1,3 1,3 1,2 3,5 Number of persons at the end of the reporting year 5 10 9 13 2022 and ends on March 31, 2024. In the system, it is possible for the target group to earn a share bonus based on the increase in the value of Fellow Bank Plc’s shares. One share unit entitles one share to an increase in value. The share units are divided into classes 2022A (approx. 650,000 units) and 2022B (approx. 2,500,000 units). The increase in the value of the share is measured from the starting level of 1.27 euros (2022A) and 0.63 euros (2022B). The increase in the value of the share units will be converted into Fellow Bank shares after the end of the earning period, and any bonuses will be paid deferred in accordance with the financial industry legislation after the end of the earning period in two equal installments, in April 2025 and April 2026. The payment of the bonus installments is followed by a one-year waiting period, during which the key person cannot hand over the shares paid as a bonus. The rewards are paid partly in Fellow Bank Plc shares and partly in cash. The monetary shares of the rewards cover the taxes and statutory social insurance contributions incurred by the participants. If the participant’s employment or management contract ends before the bonus is paid, the bonus is generally not paid. 2022 2021 Number of options at the beginning of the financial year 408 073 455 110 Changes during the period Granted 2 772 553 28 630 Forfeited -329 378 -75 667 Exercised 0 0 Number of options at the end of the financial year 2 851 248 408 073 Effect of Share-based Incentives on the result and financial position during the year 2022 Adjusted 2021 Expenses for the financial year, share based payments, equity settled -51 -165 Determination of fair value Share units are valued at fair value at the time of their grant. The fair value of the 2022 A stock reward system at the time of grant is 0.00/share unit and the fair value of the 2022 B stock reward system at the time of grant is 0.04/ share unit. The fair value of the granted share units has been determined on the grant date using the Black&Scholes pricing model, applying the historical volatility of share prices of industry benchmarks (41.3%) and other parameters in accordance with the terms of the option program. Option programs during Fellow Finance The board of directors decided on the incentive system to replace the option programs from the time of Fellow Finance, which ended prematurely before the merger was implemented. The old option programs were recorded as an expense in their entirety when they ended. 52 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements G8. OTHER ADMINSTRATIVE EXPENSES 2022 Adjusted 2021 Office expenses -208 -226 IT and infosystems -1 464 -538 Business expenses -21 0 Travel expenses -18 -16 Car costs -11 -4 Other HR related expenses -215 -157 Marketing expenses -131 -80 Banking and custodian expenses -75 -14 External services -2 339 -1 510 Other expenses -3 -101 Other administrative expenses total -4 487 -2 646 Fees paid to the audit firm 2022 Adjusted 2021 Audit -156 -20 Assignments referred to in section 1 subsection 1 section 2 of the Audit Act -70 0 Other services -11 0 Fees paid to the audit firm total -237 -20 G9. DEPRECIATION AND IMPAIRMENT 2022 Adjusted 2021 Intangible assets -541 -338 Tangible assets -32 -42 Right to use assets -119 -115 Depreciation and impairment total -691 -495 The group has not experienced any depreciation of fixed assets realized during the account- ing period. G10: OTHER OPERATING EXPENSES 2022 Adjusted 2021 Authorities expenses -369 -15 Rent expenses -108 -63 Other operating expenses -568 -196 Other operating expenses total -1 046 -274 G11. REALIZED AND EXPECTED CREDIT LOSSES 2022 Adjusted 2021 Realized credit losses on receivables Realized credit losses on loans granted during the financial year -377 -98 Realized credit losses on loans granted before the beginning of the financial year -3 562 -1 285 Realized credit losses on receivables total -3 939 -1 383 Expected credit losses change -4 382 -606 Realized and expected credit losses total -8 321 -1 989 Credit losses increased due to the comparison period due to both the strong growth of the credit portfolio and corporate loans that were stated to be defaulted, for which expected the provision for existing credit losses had already been increased significantly. The com- pany has systematically targeted lending towards customers with a lower credit risk. Expected credit losses include both receivables from customers and off-balance sheet commitments. The increase in expected credit losses was mainly the result of a strong increase in the loan portfolio. Fellow Bank has purchased a peer-to-peer loan portfolio for its own balance sheet, where expected credit loss is recorded. In the comparison period, the credit loss was only recorded from the loan portfolio of Lainaamo Oy, a member of the Fellow Finance group. 53 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Transition of loan receivables in stages The following reconciliations describe transitions and changes in expected credit losses per financial instrument category during the financial year. Stage 1 Stage 2 Stage 3 Total Loan receivables from customers 1.1.2022 12 032 874 5 211 18 118 Transfers from stage 1 to stage 2 -4 987 4 524 0 -462 Transfers from stage 1 to stage 3 -1 353 0 1 257 -97 Transfers from stage 2 to stage 1 1 018 -1 165 0 -148 Transfers from stage 2 to stage 3 0 -298 280 -18 Transfers from stage 3 to stage 1 65 0 -77 -12 Transfers from stage 3 to stage 2 0 9 -11 -2 Increases due to origination and acquisition 359 254 3 007 1 666 363 926 Decreases due to derecognition -209 943 -1 117 -288 -211 349 Decreases in the allowance account due to write-offs -3 119 -1 586 -1 458 -6 163 Loan receivables from customers 31.12.2022 152 965 4 248 6 580 163 793 The credit portfolio grew strongly during the financial year both through the granting of new loans and the purchase of peer-to-peer loan portfolios. A small part of the purchased peer-to- peer loans is recorded directly to steps 2-3. Additions due to original issuance and acquisition and deductions due to derecognition also include sales invoice financing quickly changes in the revolving loan stock. A significant part of phase 3 loan receivables is related to foreign business operations. The amount of Poland’s credit portfolio is EUR 3.4 million, of which EUR 3.2 million has been provi - sioned for bad debts. Poland’s loan receivables are almost entirely included in phase 3. Stage 1 Stage 2 Stage 3 Total Loan receivables from customers 1.1.2021 20 189 1 640 4 381 26 210 Transfers from stage 1 to stage 2 -695 553 -142 Transfers from stage 1 to stage 3 -672 611 -60 Transfers from stage 2 to stage 1 173 -339 -166 Transfers from stage 2 to stage 3 -394 366 -28 Transfers from stage 3 to stage 1 18 -79 -61 Transfers from stage 3 to stage 2 5 -7 -2 Increases due to origination and acquisition 11 338 316 4 235 15 889 Decreases due to derecognition -17 271 -250 -3 767 -21 289 Decreases in the allowance account due to write-offs -1 049 -658 -528 -2 235 Loan receivables from customers 31.12.2021 12 032 874 5 211 18 118 54 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Reconciliation of expected credit losses The following tables describe the transfers and changes in expected credit losses during the review period. The tables show a reconciliation between the opening and closing balances of the loss deduction. The growth of the credit base, both through the granting of new loans and the purchase of peer-to-peer loan portfolios, increased expected credit losses. The update of the calculation model and parameters increased the amount of expected credit losses during the financial period by a total of 0.6 million euros. Model and parameter changes require management discretion. As a result of the changes, the calculation of expected credit losses will take into account the ever more strongly weakening economic cycle, as well as the level of prices and interest rates the expected impact of the increase on customers’ ability to pay. Stage 1 Stage 2 Stage 3 Total ECL-reservation 1.1.2022 347 200 4 160 4 708 Transfers from stage 1 to stage 2 -139 905 767 Transfers from stage 1 to stage 3 -146 827 681 Transfers from stage 2 to stage 1 9 -169 -160 Transfers from stage 2 to stage 3 -86 185 99 Transfers from stage 3 to stage 1 0 -51 -50 Transfers from stage 3 to stage 2 1 -7 -7 Increases due to origination and acquisition 3 108 668 1 304 5 080 Changes in the ECL calculation model 76 195 312 583 Changes in credit risk -409 373 495 458 Decreases due to derecognition -960 -7 -477 -1 444 Decreases in the allowance account due to write-offs -63 -406 -1 110 -1 579 ECL-reservation 31.12.2022 1 825 1 673 5 639 9 137 Stage 1 Stage 2 Stage 3 Total ECL-reservation 1.1.2021 Adjusted 607 396 3 156 4 159 Transfers from stage 1 to stage 2 -25 131 106 Transfers from stage 1 to stage 3 -30 416 386 Transfers from stage 2 to stage 1 2 -65 -63 Transfers from stage 2 to stage 3 -125 276 150 Transfers from stage 3 to stage 1 -51 -51 Transfers from stage 3 to stage 2 0 2 -4 -2 Increases due to origination and acquisition 83 42 277 401 Changes due to credit risk during the stage (net) and decreases due to derecognition -253 -6 401 141 Decreases in the allowance account due to write-offs -37 -174 -309 -520 ECL-reservation 31.12.2021 347 201 4 162 4 707 55 Fellow Bank Annual Report 2022 Fell  Board of Directors’ Report GovernanceFinancial statements Macroeconomic model assumptions used in the ECL calculation The following table presents the company´s reporting period and comparison period macroeconomic model scenarios applied in the Company’s ECL calculation, and the probabilities observed in the scenario weightings. The macroeconomic model applied by the Company is based on the trend in the gross domestic product rate. Gross domestic product % MACROECONOMIC DEVELOPMENT SCENARIOS Scenario weightings 2022 2023 2024 2025 2026 Positive 20,00 % 2,6 2,5 3,1 3,3 3,4 Basic scenario (TEM) 60,00 % 2,1 0,5 1,1 1,3 1,4 Negative 20,00 % 1,6 1,5 0,9 0,7 0,7 In its negative scenario the Company has anticipated a situation in which the war in Ukraine is still having a significantly negative impact on macroeconomic performance during 2023 and 2024, also reflecting the gross domestic product rate. However, the Company anticipates that the likelihood of this development is relatively small. SENSITIVITY ANALYSIS OF EXPECTED CREDIT LOSSES The table presents the sensitivity analysis of the ECL credit loss provision based on different scenarios. K12. INCOME TAXES 2022 Adjusted 2021 Income taxes -13 -200 Deferred tax receivables -888 100 Taxes for previous period 0 -1 Income taxes total -901 -101 Tax rate reconcilation 2022 Adjusted 2021 Result before taxes -9 684 -1 464 Tax calculated at parent’s tax rate of 20% 1 937 -293 Tax for previous years 0 -1 Effect on different tax rates in foreign subsidiaries -51 96 Non-deductible expenses -11 0 Change in deferred taxes from previous financial periods -925 0 Unrecognized deferred tax assets for losses -1 937 0 Other tax items 86 97 Taxes on income statement -901 -101 EXPECTED CREDIT LOSSES IN DIFFERENT SCENARIOS 2022 Adjusted 2021 Positive 9 105 3 480 Basic scenario (TEM) 9 137 3 483 Negative 9 170 3 487 56 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements G13: EARNINGS PER SHARE 2022 2021 (Adjusted) Profit attributable to the shareholders of the parent -10 585 -1 564 Weighted avarage number of the shares 77 009 574 43 041 750 Share and option rights for share-based incentive programs 2 851 248 0 Earnings per share, basic -0,14 -0,04 Earnings per share, diluted -0,14 -0,04 * The weighted average of the following numbers of shares has been calculated in earnings per share: 1) The number of shares in Fellow Finance at the time of the merger multiplied by the exchange ratio (6), and 2) The number of Fellow Bank’s outstanding shares at the time of reporting. The EPS of the comparison period has been adjusted accordingly.  Share-based incentive plans have no diluting effect when the company’s result is loss- making. The undiluted earnings per share are calculated by dividing the profit for the financial period attributable to the parent company’s shareholders by the average number of outstanding shares during the period. When calculating the diluted earnings per share, the figures used in the calculation of the undiluted earnings per share are adjusted in order to take account of the after-tax impact of any items recognised through profit or loss in relation to ordinary shares, and also the weighted average number of the ordinary shares that would have also been outstanding if all dilutive potential ordinary shares had been converted into shares. DEFERRED TAXES 1.1.2022 Recognised in profit or loss 31.12.2022 Leases 1 1 2 Share-based payments 68 10 78 Expected credit losses 925 -925 0 Other adjustments 38 13 51 Deferred taxes total 1 032 -901 129 Adjusted 1.1.2021 Recognised in profit or loss Adjusted 31.12.2021 Leases 1 0 1 Share-based payments 35 33 68 Expected credit losses 832 93 925 Other adjustments 64 -27 38 Deferred taxes total 932 100 1 032 Fellow Bank’s fiscal status changed as part of the merger that took effect on April 2, 2022, which means that the company operates under a credit institution license. Before the merger took effect, the company operated under a payment institution license. With the change, the provisions related to the company’s credit losses are directly deductible in the company’s taxation, taking into account the maximum amount set by law for deductible expenses related to the provision recorded. As a result of obtaining a credit institution license, the company’s accounting does not create a temporary difference between accounting and taxation regarding the provision for credit losses. As a result of the change, the deferred tax receivables recorded in previous financial periods related to credit losses have also been writ - ten off during the 2022 financial year, as a result of which the group will report a tax expense for the financial year despite the loss. The cumulative losses of the Fellow Bank Group, including the losses confirmed in the taxation of the previous fiscal years of the group companies and the estimated fiscal losses for the past fiscal year, are a total of 9,194,61.51 euros at the time of preparing the financial statements, and their average expiration period is 10 years. The group has not recorded a deferred tax asset for its cumulative confirmed losses. 57 Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements G14. CLASSES OF FINANCIAL ASSETS AND LIABILITIES AND FAIR VALUES 31.12.2022 Assets Amortised cost Total Measured at fair value Value hierarchies Cash and cash equivalents 120 528 120 528 120 528 3 Claims on credit institutions 5 941 5 941 5 941 3 Claims on the public and public sector entities 154 656 154 656 154 656 3 Classes of financial assets and liabilities and fair values total 281 125 281 125 281 125 Liabilities Amortised cost Total Measured at fair value Value hierarchies Liabilities to the public and public sector entities 246 810 246 810 246 810 3 Debt securities issued to the public 0 0 0 3 Subordinated liabilities 6 203 6 203 6 203 3 Total 253 013 253 013 253 013 Adjusted 31.12.2021 Assets Amortised cost Total Measured at fair value Value hierarchies Cash and cash equivalents 0 0 0 3 Claims on credit institutions 3 457 3 457 3 457 3 Claims on the public and public sector entities 13 439 13 439 13 439 3 Total 16 896 16 896 16 896 Liabilities Amortised cost Total Measured at fair value Value hierarchies Liabilities to the public and public sector entities 0 0 0 3 Debt securities issued to the public 8 450 8 450 8 402 3 Subordinated liabilities 0 0 0 3 Total 8 450 8 450 8 402 The company has classified fair values on the basis of the fair value hierarchy as follows: Level 1: The fair values of financial instruments (such as publicly quoted derivatives and shares) traded on the active market are based on market prices quoted at the end of the reporting period. The quoted market price of financial assets is the current bid price, and the quoted market price of financial liabilities is the ask price. Level 2: For financial instruments not traded on the active market, the fair value is determined using the measurement method. These methods use as much observable market information as possible and rely as little as possible on company-specific assessments. If all the significant input data required to determine the fair value of an instrument are observable, the instrument is clas - sified as level 2. The Company does not currently have any level 2 instruments. Level 3: If one or several pieces of significant input data are not based on observable market data, the instrument is classified as level 3. These include all of the Company’s loan receivables, as the Company has exercised significant judgement in determining their fair value. G15.CASH AND CASH EQUIVALENTS 31.12.2022 Adjusted 31.12.2021 Current account in the Bank of Finland 120 528 0 Cash and cash equivalents total 120 528 0 G16. RECEIVABLES FROM CREDIT INSTITU- TIONS 31.12.2022 Adjusted 31.12.2021 Repayable on demand 5 941 3 457 Receivables from credit institutions total 5 941 3 457 G17. CLAIMS ON THE PUBLIC AND PUBLIC SECTOR ENTITIES 31.12.2022 Adjusted 31.12.2021 Enterprises and public sector entities 30 253 1 549 Households 122 449 9 294 Foreigners 1 954 2 597 Claims on the public and public sector entities total 154 656 13 440 58 Fellow Bank Annual Report 2022   GovernanceFinancial statements G18. INTANGIBLE ASSETS 2022 Goodwill Development of IT software Customer relationships Other intangible assets Total Acquisition cost at 1.1. 0 2 773 0 121 2 894 Increases 0 913 0 0 913 Acquisitions 5 957 180 240 0 6 377 Acquisition cost before depreciations 5 957 3 866 240 121 10 184 Accumulated depreciation 1.1. 0 -1 399 0 -91 -1 490 Depreciation 0 -517 -24 0 -541 Accumulated depreciation 31.12. 0 -1 913 -24 -91 -2 027 Acquisition cost at 31.12. 5 957 3 866 240 121 10 184 Accumulated depreciation 31.12. 0 -1 913 -24 -91 -2 027 Book value 31.12. 5 957 1 953 216 30 8 157 INTANGIBLE ASSETS ADJUSTED 2021 Goodwill Development of IT software Customer relationships Other intangible assets Total Acquisition cost at 1.1. 0 1 461 0 121 1 582 Increases 0 1 311 0 0 1 311 Acquisition cost before depreciations 0 2 773 0 121 2 894 Accumulated depreciation 1.1. 0 -1 108 0 -84 -1 192 Depreciation 0 -292 0 -7 -299 Accumulated depreciation 31.12. 0 -1 399 0 -91 -1 490 Acquisition cost at 31.12. 0 2 773 0 121 2 894 Accumulated depreciation 31.12. 0 -1 399 0 -91 -1 490 Book value 31.12. 0 1 373 0 30 1 403 Goodwill 31.12.2022 Adjusted 31.12.2021 Merger of Evli Pankki Oyj's banking business and Fellow Finance Oyj 5 338 0 Acquisition of Mobify Invoices Oy 619 0 Total 5 957 0 59 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements Goodwill impairment test The amount of goodwill at the end of 2022 was EUR 6.0 million (0) for the Fellow Bank group. In goodwill impairment testing, the balance sheet value of goodwill is compared to the amount of money that can be collected from the business. The amount of money that can be recovered is determined based on the market value of Fellow Bank at the closing date. Impairment testing found no need for a write-down. G19: TANGIBLE ASSETS 2022 MACHINERY AND EQUIPMENT Machinery and equipment Right-of-use property Acquisition cost at 1.1. 278 460 Increases 22 0 Decreases 0 0 Acquisition cost before depreciations 300 460 Accumulated depreciation 1.1. -240 -230 Depreciation -32 -119 Accumulated depreciation 31.12. -272 -349 Acquisition cost at 31.12. 300 460 Accumulated depreciation 31.12. -272 -349 Tangible assets total, 31.12. 28 111 G19: TANGIBLE ASSETS 2021 MACHINERY AND EQUIPMENT Machinery and equipment Right-of-use property Acquisition cost at 1.1. 267 460 Increases 11 0 Decreases 0 0 Acquisition cost before depreciations 278 460 Accumulated depreciation 1.1. -199 -115 Depreciation -41 -115 Accumulated depreciation 31.12. -240 -230 Acquisition cost at 31.12. 278 460 Accumulated depreciation 31.12. -240 -230 Tangible assets total, 31.12. 37 230 Lease liabilities 31.12.2022 Adjusted 31.12.2021 Long-term lease liabilities 114 114 Short-term lease liabilities 122 122 Lease liabilities, total 236 236 G20. OTHER ASSETS 31.12.2022 Adjusted 31.12.2021 Receivables on payment transfers 179 0 Commission receivables 1 255 2 514 Other assets 183 46 Other assets total 1 438 2 560 G21. ACCRUED INCOME AND PREPAYMENTS 31.12.2022 Adjusted 31.12.2021 Interest receivables 1 0 Prepayments 171 177 Accrued income and prepayments total 172 177 60 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements G22: TAX ASSETS AND LIABILITIES 31.12.2022 Adjusted 31.12.2021 Tax assets Deferred tax assets 129 1 032 Current income tax receivables 461 81 Tax assets and liabilities total 590 1 113 G23. LIABILITIES TO THE PUBLIC AND PUBLIC SECTOR ENTITIES 31.12.2022 Adjusted 31.12.2021 Deposits 246 810 0 Liabilities to the public and public sector entities total 246 810 0 G24.DEBT SECURITIES ISSUED TO THE PUBLIC 31.12.2022 Adjusted 31.12.2021 Bonds 0 8 402 Debt securities issued to the public total 0 8 402 G25. SUBORDINATED LIABILITIES 31.12.2022 Adjusted 31.12.2021 Debentures 6 203 0 Subordinated liabilities total 6 203 0 The debenture loan is an instrument with a lower priority than Fellow Bank’s other com- mitments, which belongs to the secondary capital referred to in the solvency regulations applicable to Fellow Bank. The loan term of the debenture loan is five years and it matures on October 17, 2027. The fixed annual interest rate of the debenture loan is 8 percent. G26. OTHER LIABILITIES 31.12.2022 Adjusted 31.12.2021 Lease liabilities 111 114 Personnel related 7 0 Accounts payable 360 743 Liabilities on peer-to-peer loans to investors 5 684 0 Other liabilities 2 635 710 Other liabilities total 8 796 1 567 Liabilities to peer-to-peer loan investors and the increase in other liabilities mainly consisted of cash flows between borrowers and peer-to-peer loan investors related to peer-to-peer loans, which Fellow Bank processes as part of its own funds with the credit institution license. During Fellow Finance, the corresponding funds were kept in separate off-balance sheet customer asset accounts, the risks and benefits did not belong to Fellow Finance, in which case the accounts were off-balance sheet items. G27. ACCRUED EXPENSES AND DEFERRED INCOME 31.12.2022 Adjusted 31.12.2021 Interest payable 1 447 63 Tax payable 4 0 Personnel related 857 514 Accrued expenses 1 559 6 Accrued expenses and prepayments total 3 867 583 Other accrued liabilities consist of usual expense provisions and purchased credit base from the related periodization, which is discharged when the loan portfolio is removed from the balance sheet. G28. EQUITY 31.12.2022 Adjusted 31.12.2021 Restricted equity Share capital 1.1. 125 125 Reverse acquisition 6 446 0 Share issue 11 715 0 Share capital 31.12. 18 286 125 Total restricted equity 18 286 125 Unrestricted equity Reserve for invested unrestricted equity 19 917 13 361 Other reserves 0 0 Retained earnings -1 636 -132 Dividends 0 0 Result for the year -10 585 -1 564 Total unrestricted equity 7 698 11 665 Total equity 25 985 11 790 61 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements G31. GROUP STRUCTURE Subsidiaries consolidated into the group 31.12.2022 Adjusted 31.12.2021 Subsidiaries Domestic Group ownership Group ownership Lainaamo Ltd Finland 100,0 % 100,0 % Mobify Invoices Ltd Finland 100,0 % 0,0 % Fellow Finance Estonia Oü Estonia 100,0 % 100,0 % Fellow Finance Česko s.r.o Czech Republic 100,0 % 100,0 % Fellow Finance Polska Sp. z o.o. Poland 100,0 % 100,0 % Fellow Finance Deutschland GmbH Germany 100,0 % 100,0 % Changes in the structure of the Fellow Bank Group during the 2022 financial year Fellow Finance Plc Lainaamo Ltd Fellow Finance Sp. X o.o. (Poland) Fellow Finance Deutschland GmbH Fellow Finance Česko s.r.o Fellow Finance Estonia Ou Fellow Bank Plc Lainaamo Ltd Fellow Finance Sp. X o.o. (Poland) Fellow Finance Deutschland GmbH Fellow Finance Česko s.r.o Fellow Finance Estonia Ou 4.7.2022 Acquisition of Mobify Invoices Ltd 2.4.2022 Merger of Evli Bank Plc’s banking business = no active activity Fellow Bank Plc Mobify Invoices Ltd Fellow Finance Sp. X o.o. (Poland) Fellow Finance Deutschland GmbH Lainaamo Ltd Fellow Finance Česko s.r.o Fellow Finance Estonia Ou G29. OFF-BALANCE SHEET ITEMS 31.12.2022 Adjusted 31.12.2021 Unused credit facilities 1 455 1 912 Total 1 455 1 912 Off-balance sheet commitments are overdraft facilities granted to customers that the customer has not withdrawn. The expected credit loss on off-balance sheet items is EUR 36 thousand (EUR 34 thousand). G30. COLLATERALS RECEIVED 31.12.2022 Real estate collateral 4 419 Guarantees received 238 Other 15 839 Collaterals received total 20 496 Information on received guarantees is only available for the ended financial period. In the future the information is also presented for the comparison period. 62 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements G32. RELATED PARTY TRANSACTIONS Related party refers to key persons in a leading position in Fellow Bank and their family members, subsidiaries and companies in which a key person in a leading position has control or joint control. The key persons are the members of the board, the CEO and the CEO’s deputy, and the rest of the management team. During the review period, business transactions with related parties consisted of Fellow Bank’s deposit liabilities and related interest. In the comparison period, business transactions include related party investments in Fellow Finance’s bonds and related interest expenses. 31.12.2022 Adjusted 31.12.2021 Assets 0 0 Liabilities 512 152 Income 0 0 Expenses 0 124 Total 513 276 G33. BUSINESS COMBINATIONS Evli Bank Plc’s banking business and Fellow Finance Plc’s merger On 14 July 2021, Fellow Finance Plc and Evli Bank Plc announced that they had agreed, by means of a merger agreement, on an arrangement through which Evli Bank would be divided, through a partial demerger, into Evli Plc, a new group that focuses on asset management and will be listed, and a company that will continue Evli Bank’s banking operations and with which Fellow Finance will merge. The demerger and merger were entered into the Trade Register maintained by the Finnish Patent and Registration Office on 2 April 2022, the day of implementation. In conjunction with the implementation of the merger, the name of Evli Bank Plc was changed to Fellow Bank Plc. In the merger, the legal acquiring party was Evli Bank. In IFRS reporting, the arrangement is treated as a reverse acquisition, where Fellow Finance is the accounting buyer and Evli Bank is the accounting object of the transaction. The goodwill generated in the merger is considered to reflect the significant benefits arising from the merger, especially from combining the ability to receive deposits enabled by Evli Bank’s credit institution license and to lend from own balance sheet with Fellow Finance’s customer base and technology, in addition to the skilled personnel who transferred from Evli. The amount of non-recurring expenses related to the merger was 1.9 million euros and they have been recorded under other administrative expenses and other operating expenses. The acquisition has been treated in the consolidated financial statements as a business combination using the acquisition cost method. The consideration paid for the acquisition was 12,505 thousand euros. The consideration is based on Fellow Finance’s share price on April 2, 2022 (3.15 euros) and the calculated number of shares that Fellow Finance would have had to issue in order to achieve the post-merger ownership structure (3,969,786). ACQUIRED BUSINESSES EVLI PANKKI OYJ Cash and equivalents 245 606 Claims on the public and public sector entities 5 326 Other receivables 718 Assets total 251 650 Liabilities to the public and public sector entities 244 000 Other liabilities 484 Liabilities total 244 484 Acquired net assets 7 167 Consideration paid for the acquisition 12 505 Allocation of the purhase price Total identified balance sheet items 7 167 Goodwill 5 338 Allocation total 5 338 In connection with the preparation of the financial statements, the company has adjusted the preliminary values of the acquired assets by 718 thousand euros, the adjustment reduces the goodwill by a corresponding amount. The profit before taxes of Evli Bank’s banking business (IFRS 5 continuing operations) from January 1 to April 1, 2022 was EUR -0.5 million due to interest expenses on deposits and the impact of business expenses. The table below shows the summary income statement of the continuing operations in question for the beginning of the year before the merger. However, due to the IFRS reverse acquisition, the result in question is not included in Fellow Bank’s H1 2022 result. 63 Fe llow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements 1.1.-1.4.2022 Total income -161 Operating expenses total -335 Impairment of receivables -1 Profit before taxes -497 After the merger, the Company’s business model changed substantially. For this reason, it is not possible to reliably estimate what the result of the group’s reporting period would have been if the acquisition had taken place on January 1, 2022. The Acquisition of Mobify Invoices Oy On July 4, 2022, Fellow Bank announced the acquisition of the entire share capital of Mobify Invoices Ltd (”Mobify”). Mobify is a Finnish company that offers an easy-to-use mobile applica - tion for comprehensive financial management. The functionalities of the Mobify application will be gradually integrated into Fellow Bank’s digital service offering. Mobify’s entire person - nel (7) transfered to the Fellow Bank group, which will further accelerate the development of Fellow Bank’s digital services. The purchase price EUR 1.3 million was paid partly in cash and partly in new shares of Fellow Bank. Fellow Bank issued a total of 1,175,088 new shares as a partial payment of the purchase price. The control of the company was transferred to Fellow Bank on July 4, 2022. The acquisition has been treated in the consolidated financial statements as a business combination using the acquisition cost method. Of the purchase price, EUR 0.4 million has been allocated to existing balance sheet items and EUR 0.2 million to customer relationships. Goodwill amounted to EUR 0.6 million. The goodwill reflects the significant benefits arising from the merger in the development of the digital services of the entire Fellow Bank Group. ACQUIRED BUSINESSES MOBIFY INVOICES OY Cash and equivalents 189 Claims on the public and public sector entities 124 Intangible assets 180 Other assets 4 Accrued income and prepayments 5 Assets total 502 Liabilities to the public and public sector entities 0 Other liabilities 69 Liabilities total 69 Acquired net assets 433 Consideration paid for the acquisition 1 292 Allocation of the purhase price Total identified balance sheet items 433 Goodwill 619 Customer relationships 240 Allocation total 859 64 Fellow Bank Annual Report 2022 Fellow Bank in brief Board of Directors’ Report GovernanceFinancial statements G34. SIGNIFICANT EVENTS AFTER THE PERIOD On January 17, 2023, the company’s board of directors decided on a new share-based incentive system for the group’s key personnel, and on the planning of employee share issue for all personnel. The performance-based share-based incentive system for key personnel has three earning periods, the first of which rewards are based on the group’s 2023 result, implementation of strategic projects, customer satisfaction (NPS) and set personal goals. In the earning period 2023, the target group includes approximately 11 key personnel, includ - ing the CEO and other members of the management team. In the planned personnel issue and additional share system (matching) offered to the entire staff, the staff would have the opportunity to subscribe for the company’s shares at a reduced price and, by subscribing, would earn the right to receive additional shares from the company at a later date. The shareholders’ nomination committee proposes to the 2023 annual general meeting that the number of board members be confirmed at seven (7), and that Lea Keinänen, Jorma Pirinen, Markku Pohjola, Teuvo Salminen and Tero Weckroth be re-elected to the board. The nomination committee proposes to elect Sami Honkonen and Johanna Lamminen as new board members. Among the current members of the board, Kai Myllyneva is no longer a candidate for the board. The company has entered a letter of intent to sell the Polish business. The size of Poland’s loan portfolio at the end of December 2022 was EUR 3.4 million. The amount of the loan loss provision for the loan portfolio was EUR 3.2 million. 65 Fellow Bank Annual Report 2022   GovernanceFinancial statements Parent company´s Financial Statements Parent company´s income statement ......................................................................................... 67 Parent company´s balance sheet ................................................................................................. 68  ................................................................................... 69 Parent company’s notes P1: Parent Company’s accounting policies .................................................................................. 70 P2: Net interest income ................................................................................................................... 71 P3: Fee and commission income and expenses ......................................................................... 71 P4: Net investment income ........................................................................................................... 72 P5: Other operating income .......................................................................................................... 72 P6: Personnel expenses ................................................................................................................. 73 P7: Other administrative expenses .............................................................................................. 73 P8: Depreciation and impairment losses ..................................................................................... 73 P9: Other operating expenses ....................................................................................................... 73 P10: Realized and expected credit losses .................................................................................... 74 P11: Income taxes ........................................................................................................................... 74  .................................................. 75  ........................................................................ 77 P14: Assets and liabilities in domestic and foreign currencies .................................................. 78 P15: Cash and cash equivalents .................................................................................................... 78 P16: Claims on credit institutions ................................................................................................. 79 P17: Claims on public and public sector entities ........................................................................ 79 P18: Debt securities ........................................................................................................................ 79 P19: Shares and participations ...................................................................................................... 80 P20: Shares and participations in associates and joint ventures ............................................. 80 P21: Derivative contracts ................................................................................................................ 81 P22: Intangible assets ...................................................................................................................... 82 P23: Tangible assets ........................................................................................................................ 83 P24: Other assets ............................................................................................................................. 84 P25: Accrued income and prepayments ...................................................................................... 84 P26: Tax assets and liabilities ........................................................................................................ 84 P27: Liabilities to credit institutions and central banks ............................................................. 84 P28: Liabilities to the public and public sector entities .............................................................. 84 P29: Debt securities issued to the public ..................................................................................... 84 P30: Derivative contracts and other liabilities held for trading ................................................. 84 P31: Other liabilities ........................................................................................................................ 84 P32: Accrued expenses deferred income ..................................................................................... 85 P33: Subordinated liabilities .......................................................................................................... 85 P34: Equity ........................................................................................................................................ 85 P35: Securities lending ................................................................................................................... 86 P36: Assets pledged as collateral .................................................................................................. 87  .......................................................................................... 88 66 Fellow Bank Annual Report 2022   GovernanceFinancial statements Parent company income statement Note 2022 2021 Interest income 11 154 2 388 Interest expenses   Net interest income E2 8 514 281 Income from equity investments E3 0 12 887 Fee and commission income E3 14 442 46 782 Fee and commission expenses E3   Net investment income E4 21 597 3 410 Other operating income E5 740 4 867 Total operating income 42 822 64 364 Operating expenses Personnel expenses E6   Other administrative expenses E7   Depreciation and amortization on tangible and intangible assets E8   Other operating expenses E9   Realized and expected credit losses E10  80  17 710 28 018  17 710 28 018 Income taxes E11    17 699 24 385 67 Fellow Bank Annual Report 2022   GovernanceFinancial statements  Note 2022 2021 Assets Cash and equivalents E15 120 528 384 102  central banks 0 33 382 Claims on credit institutions E16 4 847 40 105 Claims on the public and public sector entities E17 155 080 98 087 Debt securities E18 0 744 Shares and participations E19 5 028 67 815 Shares and participation in associates and joint ventures E20 0 5 354 Derivative contracts E21 0 26 404 Intangible assets E22 1 964 4 456 Property, plant and equipment E23 29 947 Other assets E24 1 092 72 172 Accrued income and prepayments E25 193 1 245 Income tax assets E26 224 0 Assets total 288 985 734 813 Note 2022 2021  Liabilities to credit institutions and central banks E27 0 8 610 Liabilities to the public and public sector entities E28 246 810 442 706 Debt securities issued to the public E29 0 91 015 Derivative contracts and other liabilities held for trading E30 0 26 293 Other liabilities E31 8 751 70 829 Accrued expenses and deferred income E32 3 791 12 045 Subordinated liabilities E33 6 203 0  265 555 651 498 Equity E34 Share capital 18 289 30 194 Share premium fund 0 1 839  12 452 23 285 Retained earnings  3 640  17 699 24 385 Equity total 23 430 83 343  288 985 734 841 68 Fellow Bank Annual Report 2022   GovernanceFinancial statements  2022 2021   17 699 28 018  Depreciation and impairment 1 077 1 913 Credit losses 8 011 0 Income taxes 11  Other adjustments 0 1 762  9 100 2 367   26 799 30 385  Claims on the public and public sector entities 34 186 33 777 Other assets  6 998  Liabilities to the public and public sector entities   Other liabilities  5 076  -11 424 71 323 2022 2021  Investments in tangible assets   Investments in intangible assets   Acquisitions of subsidiaries    -1 319 -1 373  Repayment of bond  0 Issue of debenture loan 6 100 0 Dividends paid to company´s shareholders   Paid directed share issue 11 715 0 Repayments of lease liabilities 0 0  -14 794 -17 415  -27 537 52 535 Cash and cash equivalents at the beginning of period 385 161 332 626   0  0  125 375 385 161  items:  385 161     245 606   Cash and cash equivalents 31.12.2022 120 528 Claims on credit institutions 31.12.2022 4 847   125 375 69 Fellow Bank Annual Report 2022   GovernanceFinancial statements        sions of the Accounting Act and Act on Credit Institutions, the Decree of the Ministry of    sector.       recorded at book values.      •  •  •  • Derivative contracts •  • Derivative contracts and other liabilities held for trading purposes   amount of an asset or liability in the balance sheet and its tax base. The largest temporary  Leases   under these contracts are treated as rental expenses. Moreover, an asset acquired under a  70 Fellow Bank Annual Report 2022   GovernanceFinancial statements  P2: NET INTEREST INCOME 2022 2021 Interest income  0 338 Interest income from other loans and claims Claims on credit institutions 352 69 Claims on the public and public sector entities 10 803 1 529 Other interest income 0 453 Interest income Total 11 154 2 388   Liabilities to the public and public sector entities and credit institutions   Debt securities issued to the public   Subordinated liabilities  0 Other interest expenses    -2 640 -2 107 Net interest income 8 514 281 P3: FEE AND COMMISSION INCOME AND EXPENSES 2022 2021  Dividends from associated companies 0 1 682  0 37 Dividends from group companies 0 11 168  0 12 887  Credit related fees and commissions 831 59 Peer to peer lending 1 225 0 Income from payment transactions 0 33 Insurance brokerage 47 0 Advisory services 0 1 740 Securities brokerage 0 12 410 Securities issue 12 264 0 Mutual funds 0 25 925 Asset management 0 5 904 Custody services 0 464 Other fee and commission income 75 247  14 442 46 782  Lending  0 Peer to peer lending  0 Trading fees paid to stock exchanges   Other fee and commission expenses    -2 471 -3 862 71 Fellow Bank Annual Report 2022   GovernanceFinancial statements P4: NET INVESTMENT INCOME 2022 2021 Financial assets held for trading 25 131  21 915 1 360 Net income from foreign exchange operations  1 918  21 597 3 410 2022    on sales   Total Debt securities Shares and derivative contracts 22 218  21 963 Net income from foreign exchange operations  0   21 852 -255 21 597 2021    on sales   Total Debt securities    Shares and derivative contracts 1 515 410 1 925 Net income from foreign exchange operations 1 918 0 1 918  3 291 119 3 410 P5: OTHER OPERATING INCOME 2022 2021 Other income 740 4 867  740 4 867 72 Fellow Bank Annual Report 2022   GovernanceFinancial statements P6: PERSONNEL EXPENSES 2022 2021 Wages and salaries    0  Other social security costs    0  Pension expenses    0   0  Activation of personnel costs 323 0  -7 382 -19 498  2022 2021 Number of personnel during the period, average 74 151 Number of personnel at the end of the period 66 152 Employees by business segment at the end of the period Advisory and Corporate Clients  96 Wealth Management and Investor Clients  6 Group Operations  50 Total - 152   P7: OTHER ADMINSTRATIVE EXPENSES 2022 2021    IT and infosystems      Travel expenses   Car expenses      Marketing expenses      External services    -6 838 -11 453 FEES PAID TO THE AUDIT FIRM 2022 2021 Audit   Assignments referred to in section 1 subsection 1 section 2 of the Audit Act  0 Other services    -237 -789 P8: DEPRECIATION AND IMPAIRMENT LOSSES 2022 2021 Intangible assets   Tangible assets    total -1 077 -2 783  accounting period. P9: OTHER OPERATING EXPENSES 2022 2021 Authorities expenses   Rent expenses   Other operating expenses    -1 802 -2 692 73 Fellow Bank Annual Report 2022   GovernanceFinancial statements  2022 2021  Realized credit losses on loans granted during the   0 Realized credit losses on loans granted before the   0  losses -3 618 0   80  -8 011 80 Expected credit losses are taken into account on expected credit losses from receivables from       P11: INCOME TAXES 2022 2021 Income taxes 0  Other direct taxes  0 Taxes for previous period 0   -11 -3 634 74 Fellow Bank Annual Report 2022   GovernanceFinancial statements  P12: CLASSES OF FINANCIAL ASSETS   Assets  Total   Cash and cash equivalents 120 528 120 528 120 528   0 0 0 Claims on credit institutions 4 847 4 847 4 847 Claims on the public and public sector entities 155 080 155 080 155 080 Debt securities 0 0 0 Shares and participations 5 028 5 028 5 028 Derivative contracts Other assets 1 092 1 092 1 092 Total 286 576 286 576 286 576   Total   Liabilities to credit institutions and central banks 0 0 0 Liabilities to the public and public sector entities 246 810 246 810 246 810 Debt securities issued to the public 0 0 0 Derivative contracts and other liabilities held for trading 0 0 0 Subordinated liabilities 6 203 6 203 6 203  8 751 8 751 8 751 Total 261 764 261 764 261 764  Assets  Total   Cash and cash equivalents 384 102 384 102 384 102   33 382 33 382 33 382 Claims on credit institutions 40 105 40 105 40 105 Claims on the public and public sector entities 98 087 98 087 98 087 Debt securities 744 744 744 Shares and participations 49 394 49 394 49 394 Derivative contracts 26 404 26 404 26 404 Total 632 219 632 219 632 219   Total   Liabilities to credit institutions and central banks 8 610 8 610 8 610 Liabilities to the public and public sector entities 442 706 442 706 442 706 Debt securities issued to the public 91 015 91 015 90 172 Derivative contracts and other liabilities held for trading 26 293 26 293 26 293 Total 568 624 568 624 567 781 75 Fellow Bank Annual Report 2022   GovernanceFinancial statements         mined using the measurement method. These methods use as much observable market     instruments.     76 Fellow Bank Annual Report 2022   GovernanceFinancial statements 2022 2021 P13: MATURITIES OF FINANCIAL ASSETS  LESS THAN 3 MONTHS 3-12 MONTHS 1-5 YEARS 5-10 YEARS OVER 10 YEARS TOTAL LESS THAN 3 MONTHS 3-12 MONTHS 1-5 YEARS 5-10 YEARS OVER 10 YEARS TOTAL Assets Financial liabilities at amortized cost Cash and cash equivalents 120 528 120 528 384 102 0 0 0 0 384 102 Claims on credit institutions 4 847 4 847 40 105 0 0 0 0 40 105 Claims on the public and public sector entities 34 233 7 044 61 683 46 831 14 002 163 793 23 596 21 756 52 735 0 0 98 087   central banks 0 8 021 9 934 15 428 0 0 33 382 Debt securities 0 0 0 392 352 0 744 Shares and participations 0 42 671 2 959 358 2 835 572 49 394 Derivative contracts 0 23 854 671 1 879 0 0 26 404 Accrued interest 0 282 59 0 0 0 341  Financial liabilities at amortized cost Liabilities to credit institutions 0 8 610 0 0 0 0 8 610 Liabilities to public 197 863 19 335 31 059 0 0 248 257 442 706 0 0 0 0 442 706 Debt securities issued to the public 0 938 10 709 75 198 4 170 0 91 015 Subordinated liabilities 6 203 6 203 23 746 669 1 879 0 0 26 293  loss 0 46 0 0 0 0 46 Accrued interest, debt 1 455 1 455 12 029 6 005 3 067 0 0 21 100   tions are reported so that quoted shares in the trading book and quoted mutual funds are in the shortest maturity period. Unquoted shares are reported according to the estimated liquidation       77 Fellow Bank Annual Report 2022   GovernanceFinancial statements 2022 2021  AND FOREIGN CURRENCY DOMESTIC CURRENCY FOREIGN CURRENCY TOTAL DOMESTIC CURRENCY FOREIGN CURRENCY TOTAL Assets Financial assets at amortized cost Cash and cash equivalents 120 528 120 528 384 102 0 384 102 Claims on credit institutions 4 846 1 4 847 39 723 381 40 105 Claims on the public and public sector entities 155 080 155 080 98 087 0 98 087   0 0 34 126 0 34 126 Debt securities 0 0 0 0 0 Shares and participations 5 028 5 028 48 250 1 144 49 394 Derivative contracts 0 0 26 106 298 26 404 Other asset items 3 501 3 501 102 104 491 102 595 Total 288 984 1 288 985 732 500 2 314 734 813  Financial liabilities at amortized cost Liabilities to credit institutions 0 0 8 610 0 8 610 Liabilities to the public and public sector entities 246 810 246 810 430 839 11 867 442 706 Debt securities issued to the public 0 0 91 015 0 91 015  0 25 995 298 26 293 Subordinated liabilities 6 203 6 203 0 Other liabilities items 12 520 23 12 543 82 298 546 82 844 Total 265 533 23 265 555 638 757 12 711 651 468 P15: CASH AND CASH EQUIVALENTS    120 528 384 079 Other 0 23  120 528 384 102 78 Fellow Bank Annual Report 2022   GovernanceFinancial statements    Repayable on demand 4 847 1 059 Other than repayable on demand 0 39 046  4 847 40 105     Other than repayable on demand Enterprises and housing associations 23 693 22 554 Financial and insurance corporations 0 1 368  129 433 66 863 Foreign countries 1 954 7 302  155 080 98 087  155 080 98 087    2022 Total Issued by other than public corporations Fair valued  0 Other debt securities 0  corporations 0 0 0  0 0 0   2021 Total Issued by other than public corporations Fair valued  33 382 58 33 441 Other debt securities 0 686 686  corporations 33 382 744 34 126  33 382 744 34 126  2022 2021  Other 0 33 382 Debt securities Other 0 744 Total 0 34 126  Finland 0 21 715  0 5 346 Denmark 0 7 065 79 Fellow Bank Annual Report 2022   GovernanceFinancial statements P19: SHARES AND PARTICIPATIONS 2022   Total Shares and participations  loss 0  0 Other 0  0 0 0 2021 Shares and participations   2 0 2 Other 42 082 7 310 49 391  42 084 7 310 49 394 P20: SHARES AND PARTICIPATION IN ASSOCIATES AND JOINT VENTURES 2022 2021 At the beginning of the period 5 354 4 354   0  0 1 001  0 5 354  At the beginning of the period 18 465 18 463   0   0 Additions 1 292 2  5 028 18 465 80 Fellow Bank Annual Report 2022   GovernanceFinancial statements P21: DERIVATIVE CONTRACTS  Nominal value of underlying, gross REMAINING MATURITY REMAINING MATURITY 2022 2021 HELD FOR TRADING LESS THAN 1 YEAR 1-5 YEARS 5-10 YEARS FAIR VALUE  ASSETS  LESS THAN 1 YEAR 1-5 YEARS 5-10 YEARS FAIR VALUE  ASSETS  Interest rate derivatives  0 0 4 480 70 529 3 190 0 1 975 1 975  Futures 0 0 2 180 1 040 0 0 353 353 Options bought 0 0 0 0 0 0 0 0 Options sold 0 0 0 0 0 0 0 0  0 0 4 073 234 8 264 0 111 24 076 23 965  0 0 0 0 0 0 4 079 894 79 833 3 190 111 26 404 26 293  0 0 0 0 0 0 4 079 894 79 833 3 190 111 26 404 26 293  the public. The interest rate derivatives hedge the interest rate risk in liabilities in the balance sheet. Currency derivatives comprise commitments made against clients and the associated hedges, and contracts made to hedge currency risk in the balance sheet. The net open risk position   81 Fellow Bank Annual Report 2022   GovernanceFinancial statements  2022       assets Total Acquisition cost at 1.1. 1 168 1 401 21 536 2 331 26 436 Increases 0 0 526 0 526      -22 411 Acquisition cost before depreciations 0 0 4 551 0 4 551 Accumulated depreciation 1.1.     -21 980 Depreciation     -511  760 1 390 15 535 2 096 19 781 Accumulated depreciation 31.12.     -2 711 Acquisition cost at 31.12. 0 0 4 551 0 4 551 Accumulated depreciation 31.12.     -2 711  0 0 1 964 0 1 964 2021 Acquisition cost at 1.1. 1 168 1 401 21 321 2 331 26 221 Increases 0 0 215 0 215 Acquisition cost before depreciations 1 168 1 401 21 536 2 331 26 436 Accumulated depreciation 1.1.     -19 369 Depreciation     -2 612 Accumulated depreciation 31.12.     -21 980 Acquisition cost at 31.12. 408 11 3 802 235 4 456 Accumulated depreciation 31.12.     -21 980  408 11 3 802 235 4 456 82 Fellow Bank Annual Report 2022   GovernanceFinancial statements  2022  equipment  assets Total Acquisition cost at 1.1. 1 668 601 2 269 Increases 22 0 22    -2 013 Acquisition cost before depreciations 272 7 279 Accumulated depreciation 1.1.  0 -1 323 Depreciation  0 -19  1 099  1 092 Accumulated depreciation 31.12.   -250 Acquisition cost at 31.12. 272 7 279 Accumulated depreciation 31.12.   -250  29 0 29 2021 Acquisition cost at 1.1. 1 514 601 2 115 Increases 154 0 154 Acquisition cost before depreciations 1 668 601 2 269 Accumulated depreciation 1.1.  0 -1 151 Depreciation  0 -172 Accumulated depreciation 31.12.  0 -1 323 Acquisition cost at 31.12. 346 601 947 Accumulated depreciation 31.12.  0 -1 323  346 601 947 83 Fellow Bank Annual Report 2022   GovernanceFinancial statements P24: OTHER ASSETS   Securities sale receivables 0 1 518 Commission receivables 910 2 768 Securities broking receivables 0 55 665 Other receivables 182 12 221  1 092 72 172 P25: ACCRUED INCOME AND PREPAYMENTS   Interest 6 341  39 8 Other items 148 896  193 1 245    Deferred tax assets 0 0 Income tax assets 224 0 Deferred tax liabilities 0 30 Income tax liabilities 0 0  224 30     Credit Institutions Other than rebayable on demand 0 8 610  total 0 8 610      Repayable on demand 246 810 442 706  total 246 810 442 706     0 91 015  0 91 015  Issues 0 4 200 Repurchases 0 34 300  HELD FOR TRADING   Derivative contracts 0 26 293   0 26 293    Securities broking liabilities 0 61 566 Securities purchase liabilities 0 789 Income tax payable 0 63 Personnel related 0 392  8 582 7 299 Prepayments of cash customers 0 338 VAT payable 169 382  8 751 70 829 84 Fellow Bank Annual Report 2022   GovernanceFinancial statements P32: ACCRUED EXPENSES AND DEFERRED INCOME   Personnel related 820 8 797 Tax payables 0 2 264 Interest expenses 1 447 46 Other accrued expenses 1 525 937  3 791 12 045    Debentures 6 203 0  6 203 0 P34: EQUITY    Share capital 1.1. 30 194 30 194  125 0   0 Directed share issue 11 715 0  18 289 30 194 Share premium fund 1.1. 1 839 1 839   0  0 1 839  18 289 32 033   23 285 23 285   0 Directed share issue 500 0  11 952 0  12 452 23 285 Retained earnings 1.1. 28 025 21 055   0 Dividends   Result for the year 17 699 24 385  -7 312 28 025  5 141 51 310 Total equity 23 430 83 343 85 Fellow Bank Annual Report 2022   GovernanceFinancial statements P34: EQUITY    Retained earnings 1.1. 28 025 21 055   Dividends   Result for the year 17 699 24 385 Reserve for invested unrestricted equity 12 452 23 285 Capitalized development expenditure  0 Total 3 176 51 310     under the trading code FELLOW.  88.332.182 24.109.420 Total   Each share carries one vote at a General Meeting of Shareholders   P35: SECURITIES LENDING 2022 2021 Market value of securities lending at 31.12., lent in 0 2 264 Market value of securities lending at 31.12., lent out 0 0 86 Fellow Bank Annual Report 2022   GovernanceFinancial statements P36: ASSETS PLEDGED AS COLLATERAL 2022 2021 ASSETS     assets  as collateral     assets  as collateral Cash and cash equivalents 0 120 528 118 066 0 384 102 379 546  0 0 0 33 382 0 0 Claims on credit institutions 0 4 847 4 847 39 046 1 059 1059 Claims on the public and public sector entities 0 155 080 0 0 98 087 0 Debt securities 0 0 0 0 744 0 Shares and participations 0 0 0 0 49 394 0 Total 0 280 456 122 913 72 428 533 386 380 605 USAGE OF COLLATERAL 2022 2021  0 1 638 Collateral for OTC derivatives trades 0 34 743 Collateral for securities lending 0 2 665  0 33 382 Total 0 72 428    2021 Received cash 0 38 264 87 Fellow Bank Annual Report 2022   GovernanceFinancial statements  2022 2021 Rental liabilities up to one year 0 1 712 Rental liabilities over one year and less than 5 years 0 5 564 Rental liabilities over 5 years 0 106 Leasing liabilities not later than one year 0 0  0 0 Commitments given to a third party on behalf of a customer 0 398 Irrevocable commitments given in favour of a customer 0 2 565 Guarantees on behalf of others 0 14 Unused credit facilities, given to clients 1 455 18 123 Total 1 455 21 100    Commitments given on behalf of a customer for a third party include collaterals for deriva  tives positions given on behalf of customers. The customers have covered their derivatives  customer comprise subscription commitments guaranteed on behalf of customers. 88 Fellow Bank Annual Report 2022   GovernanceFinancial statements Helsinki, February 27, 2023 Auditor’s Note Based on the auditing an audit report has been issued today. Helsinki, March 15, 2023 PricewaterhouseCoopers Oy Authorised Public Accountants Jukka Paunonen Authorised Public Accountant (KHT) Signatures on the Financial Statements and the Annual Report Markku Pohjola Chairman of the Board Jorma Pirinen Teuvo Salminen Deputy Chairman of the Board Lea Keinänen Kai Myllyneva Tero Weckroth Teemu Nyholm CEO 89 Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements 90 Auditor’s Report (Translation of the Finnish Original) To the Annual General Meeting of Fellow Bank Plc Report on the Audit of the Financial Statements Opinion In our opinion •  -   •    -   What we have audited   •    •   Basis for Opinion -     Independence         Our Audit Approach Overview  Audit    Materiality •   Audit Scope •    Key audit matters •  •   •   Fellow Bank Annual Report 2022         Materiality            Overall group materiality  How we determined it  Rationale for the material- ity benchmark applied       How we tailored our group audit scope        Key Audit Matters        Key audit matter in the audit of the group How our audit addressed the key audit matter Loans and receivables from customers Group note G17   -                                Fellow Bank Annual Report 2022     Responsibilities of the Board of Directors and the Managing Director for the Financial Statements   -       Key audit matter in the audit of the group How our audit addressed the key audit matter  Group note G33      The consideration transferred as well as the assets   -                        Key audit matter in the audit of the group How our audit addressed the key audit matter Accounting for the transferred assets and liabilities of Fellow Finance in the receiving parent company Parent company notes E1, E20, E22, E23 and E34    The accounting principles and disclosures about the transferred assets and liabilities of Fellow Finance are included in the parent company’s notes.                          Fellow Bank Annual Report 2022    93       Auditor’s Responsibilities for the Audit of the Financial Statements           •       •   -  •   •           •    •                   Fellow Bank Annual Report 2022     Other Reporting Requirements Appointment   Other Information        -      •   •         Jukka Paunonen  Fellow Bank Annual Report 2022    95 Governance In addition to legislation and other regulations, Fellow Bank’s operations and administration are guided by the Articles of Association and the company’s values and internal operating principles. Fellow Bank also complies with the Corporate Governance Code 2020. The code can be viewed on the internet at . Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements General Meeting Fellow Bank’s highest decision-making power is exercised by the shareholders at the General Meeting. General Meetings are held at least once a year. In addition to the General Meeting, Fellow Bank’s corporate governance model consists of the Board of Directors and the CEO. The Group’s Management Team assists the CEO in the operative management of the company. Board of Directors The Board of Directors is responsible for Fellow Bank’s administration and appropriate organisation of operations. The Board of Directors has overall authority to decide on all matters related to the company’s administration and other matters which, under the law or the Articles of Association, do not belong to the General Meeting or the CEO. The Board of Directors meets regularly at least six times per year. If necessary, the Board of Directors can meet more often. The Board of Directors is quorate when more than half of the members are present. The Board of Directors is elected by the General Meeting. In accordance with the Articles of Association, the company’s Board of Directors shall consist of at least four (4) and at most eight (8) regular members whose term shall expire at the close of the Annual General Meeting that follows their election. The company’s corporate governance principles and a general description of governance before the merger have been published in a separate document, Fellow Bank Plc’s Corporate Governance Statement, which can be found on the company’s website, www.fellowbank.com 96 Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements Fellow Bank Oyj began operations on April 2, 2022. In 2022, the company’s board of directors included the following persons: Markku Pohjola (Chairman of the Board) b. 1948 B.Sc. (Econ.) Teuvo Salminen (Deputy Chairman of the Board) b. 1954 M.Sc. (Econ.) Jorma Pirinen b. 1959 graduate in business and marketing and MBA Tero Weckroth b. 1971 MBA Lea Keinänen b. 1966 graduate in business and marketing and MBA Kai Myllyneva b. 1969 M.Sc. (Econ.) 97 Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements The Board’s committees Audit Committee The Audit Committee is responsible for assisting the Board of Directors in ensuring that the company has an adequate internal control system covering all operations and that the company’s risk management has been arranged appropriately, and it also monitors the  The Chairman of the Audit Committee was Teuvo Salminen. The members of the committee were Jorma Pirinen and Tero Weckroth. Personnel Committee The Personnel Committee, which also acts as the Compensation Committee, is responsible for assisting the company’s Board in the preparation of matters related to the terms of employment and remuneration of management and employees. The Personnel Committee monitors and assesses the company’s wellbeing at work, personnel satisfaction and development. The Chairman of the Personnel Committee was Markku Pohjola. The members were Lea Keinänen and Kai Myllyneva. Shareholders’ Nomination Board Fellow Bank Plc’s Shareholders’ Nomination Board prepares proposals regarding the election and remuneration of the members of the Board for the Annual General Meeting. In accordance with the charter of the Shareholders’ Nomination Board, each of the four largest shareholders of the company shall appoint a member to the Shareholders’ Nomination Board. The shareholders who are entitled to appoint a member are determined annually on the basis of the company’s shareholder register maintained by Euroclear Finland Oy on the last working day of August each year Composition of the Nomination Committee as of 26 September 2022: • Maunu Lehtimäki (Chairman), who was appointed by Evli Plc with 15,288,303 shares • Karri Haaparinne, who was appointed by Taaleri Plc with 15,288,303 shares • Henrik Andersin, who was appointed by Oy Scripo Ab with 4,754,100 shares • Harri Tilev, who was appointed by Oy T&T Nordcap Ab with 3,938,616 shares • In addition, Markku Pohjola, the Chairman of the Board of Fellow Bank, serves as an expert in the Nomination Committee without being a member. CEO and Management Team The CEO is responsible for the day-to-day management of the company in accordance with the Limited Liability Companies Act and the instructions, orders and authorisations issued by the Board. The CEO also ensures that the company’s accounting practices are in  in a reliable manner. The Board of Directors shall appoint the CEO and shall decide on the remuneration of the CEO and the other terms and conditions of the CEO’s service contract. The Management Team assists the CEO in the operational management. Teemu Nyholm was the CEO in 2022 (b. 1975, M.Sc. (Tech.) and B.Sc. (Econ. & Bus. Adm.) 98 Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements The members of the Management Team in 2022 were: Teemu Nyholm b. 1975 CEO M.Sc. (Tech.) and B.Sc. (Econ. & Bus. Adm.) Antoni Airikkala b. 1985 Director, Deposit and Investor Customers M.Soc.Sc. Miikka Silvonen b. 1989 Director, Business Customers M.Sc. (Econ. & Bus. Adm.) Juha Saari b. 1979 Director, Personal Customers; Deputy CEO Secondary-school graduate Riikka Järvinen b. 1974 Marketing Director M.Sc. (Econ. & Bus. Adm.) Member of the Management Team as of 19 April 2022. . Piia Vuoti b. 1977 General Counsel (as of 8 August 2022) LL.M., Trained on the bench Linda Magnusson was the General Counsel until 13 May 2022. Kukka Lehtimäki b. 1988 CFO (as of 2 May 2022) M.Sc. (Econ. & Bus. Adm.) Christina Wallenius was the interim CFO until 1 May 2022. 99 Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements Fellow Bank Annual Report 2022  Board of Directors’ Report GovernanceFinancial statements Fellow Bank Plc Pursimiehenkatu 4 A 00150 Helsinki P. +358 20 380 101 (0,1717 €/min) fellowbank.com linkedin.com/company/fellow-pankki twitter.com/FellowPankkiFi